Schwab Market Update

Published as of: December 23, 2024, 9:13 a.m. ET

(Monday market open) The holiday-shortened week starts with some cheer spilling over from Friday's rebound and the end of a government shutdown threat. The latest consumer confidence report and a 2-year Treasury note auction are possible highlights today as tech stocks climbed early after a challenging period on Wall Street that has the broader market down nearly 2% month to date.

"This week is going to be light on the economic front," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "There are no earnings reports on the calendar, and there are only 3.5 days of trading. Perhaps last week's mid-week sell-off was a healthy correction to help shake off some of the speculative excess that had been cropping up in the stock market."

Despite Friday's bounce after data showed lighter-than-expected November inflation growth, markets lost significant ground last week. Meanwhile, market breadth—a measure of how many stocks trade above their long-term averages—remains far below healthy levels seen late last month. One technical indicator, the Relative Strength Index, fell below 40 last week and closed in on oversold territory, which can sometimes trigger buying interest. Still, there are increasing signs that investors have at least temporarily lost some of their appetite for risky assets heading into the close of the year, perhaps making a "Santa Claus rally" less likely.

1. Light trading volume could mean sharper moves: This week is truncated by an early close tomorrow and a complete shutdown for Christmas on Wednesday. Associated thin volume can mean sharper up and down moves for both individual stocks and major indexes, meaning anyone trading should be on their toes and perhaps consider keeping trading sizes smaller than usual. That light volume, which could extend to next week, might make it hard to glean much from any major market moves. Rallies or sell-offs could be seen as less relevant than normal simply because so many major players are absent. A Santa Claus rally, if it happened, would traditionally start December 24 and extend into the first two sessions of January.
2. 50-Day moving average seen as possible support: With data and earnings light this week, technical indicators might play a bigger role than normal. One to watch is the SPX 50-day moving average, which begins the week just below 5,930. That happens to be right where the SPX settled Friday. Any close above that would likely build confidence after the index closed below that trend line for the first time since September last week. "The technicals look bullish to me provided the index remains above this indicator," said Schwab's Peterson.
3. Inflation in focus as consumer confidence looms: Earnings are few and far between and there aren't any major jobs or inflation data in the near term, meaning markets could move more on outside news such as geopolitics. However, the Conference Board's December consumer confidence report comes out soon after the opening bell today. Consensus is 113.5, up from the prior 111.7, but the inflation aspect is front and center after Friday's University of Michigan final December consumer sentiment report showed one-year inflation expectations slipping to 2.8% from the preliminary 2.9%. The Fed closely watches this metric, and so does the Treasury market, which remains in a downtrend. The benchmark 10-year yield climbed a couple basis points again this morning and has been a constant thorn in the side of recent rally attempts by stocks. Today's $69 billion 2-year Treasury note auction could provide direction, with any sign of weak demand potentially sending yields even higher.

• Qualcomm (QCOM) rose nearly 3% ahead of the open as the company prevailed at trial against Arm Holdings' (ARM) claim that it breached a license for chip technology Qualcomm acquired when it bought a startup in 2021, Bloomberg reported.
• Mega caps including Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), and others traded mostly higher in the early going amid a wide rally in technology stocks that included many semiconductor names besides Nvidia. Mega caps often set the tone on Wall Street, and Nvidia, which was up more than 1% in pre-market action, got additional help from a Morgan Stanley (MS) report released Friday that named the stock a top pick for 2025.
• Eli Lilly (LLY) gained 1.35% in pre-market trading following the U.S. Food and Drug Administration's (FDA) approval of the company's Zepbound weight-loss drug for use in some types of obstructive sleep apnea for adults with obesity.

2025 resolution—prepare for volatility: The first month of the year is often a volatile time characterized by trends such as buying last year's losers and liquidating winners. However, this January might feature more than the usual volatility thanks to a new administration taking power in Washington, D.C., and its proposed policy changes on everything from tariffs to taxes to electric vehicles. And before the new year begins, investors might want to be on the lookout for volatility caused by end-of-the-year tax-loss harvesting.

The market at the end of December often rises in a phenomenon known as the Santa Claus rally. However, a "bearish wedge" seen in this one-year chart of the S&P 500 (SPX—candlesticks) could stop Santa's sleigh from rolling this year. A bearish wedge occurs as investors turn increasingly bullish and buying becomes frenzied. The S&P 500's two-plus-year bull market accelerated in the second half of 2024 and resembles a wedge price pattern. The index broke the support line of the wedge after the Fed's December meeting.