The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
After a stellar year for U.S. stocks, with the S&P 500 up over 23% in 2024, investors are cautiously optimistic about the "Santa Claus Rally"—a seasonal boost traditionally seen in the final days of December and early January. However, rising Treasury yields, a hawkish Federal Reserve, and narrowing market breadth suggest Santa might disappoint this year.
Key Highlights
1. Historical Context
- The Santa Claus Rally period, comprising the last five trading days of December and the first two of January, has historically yielded an average 1.3% S&P 500 gain, according to the Stock Trader’s Almanac.
- Positive performance during this period is often seen as a harbinger of gains for the following year, with a 90% success rate when paired with other January indicators.
2. Market Challenges
- Biggest Drop Since August:
- The S&P 500 fell sharply on Wednesday after the Federal Reserve signaled fewer rate cuts in 2025 than expected.
- Sector Struggles:
- Eight of 11 S&P 500 sectors are down for December, with the equal-weight S&P 500 losing 7% this month.
- Rising Treasury Yields:
- 10-year yields reached 4.55%, the highest in six months, pressuring equity valuations.
Valuation Concerns
- The S&P 500 is trading at 21.6 times forward earnings, well above its historical average of 15.8 times, raising concerns about overvaluation.
3. Seasonal Trends and Risks
- November's 5.7% S&P 500 gain, driven by Donald Trump's election victory, may have pulled forward the year-end rally, dampening December's potential.
- Narrowing breadth:
- 13 straight sessions of declining S&P 500 components outpacing gainers—the longest streak since 2012.
- Only 56% of S&P 500 stocks trade above their 200-day moving averages, the lowest level this year.
4. Notable Winners in December
- Tesla: +26%.
- Alphabet: +12%.
- Broadcom: +35%, fueled by AI chip demand and surpassing a market value of US$1 trillion.
Market Outlook
- Cautious Optimism: Some analysts believe this week's selloff could eliminate excessive froth, setting the stage for a potential rebound.
- Strategic Patience: Experts recommend waiting for improved momentum and established support before buying dips.
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