US Market Insights (16-20 Dec): Bracing for a Santa Claus Rally
The $.SPX(.SPX)$ and $.IXIC(.IXIC)$ returned -0.61% and +0.75%, respectively, last week.
Major market movers include $NVIDIA(NVDA)$ (-5.75%), $Adobe(ADBE)$ (-15.78%), $Eli Lilly(LLY)$ (-4.35%), $Oracle(ORCL)$ (-9.55%), $Broadcom(AVGO)$ (+25.22%), $Tesla Motors(TSLA)$ (+12.08%), $Alphabet(GOOG)$ (+8.77%), and $ba(+10.21%).
Important economic events this week include Flash Manufacturing/Services PMI on Monday, Retail Sales on Tuesday, the FOMC meeting on Wednesday, Unemployment Claims and GDP on Thursday, and PCE on Friday.
Read more>>Weekly: Nasdaq logged a record high before the final Fed meeting of 2024
What You Should Know Before Starting Your Week:
1) US stocks may rise even higher on strong second-half December seasonality:
Since 1950, the second half of December has had the highest likelihood of a positive return for any half-month of the year. It also boasts the highest average return of 1.35% for the $.SPX(.SPX)$ .
Source: YahooFinance, 4 Dec 2024
2) Post-Election Rally May Only Take a Breather After Inauguration Day
Based on the average $.SPX(.SPX)$ performance in the first year of presidential terms (since 1960), the S&P 500 generally faces two corrections: one from mid-February to the end of March and another from early August to the end of September.
If there were a February correction, it could be because investors have front-loaded much of the optimism surrounding Trump’s policies ahead of Inauguration Day (January 20, 2025). After Inauguration Day, investors may realize that Trump could fall short of his promises, or it may take longer to implement his expansionary policies.
3) $Broadcom(AVGO)$ ’s Custom AI Chips Sales Forecast Implies AI Boom Is Not Ending Anytime Soon
Broadcom’s AI sales amounted to $12.2 billion last fiscal year.
Broadcom now predicts that its custom AI chips will generate between $60 billion and $90 billion in revenue in fiscal 2027 from three hyperscaler customers.
This implies that the AI boom is expanding beyond just Nvidia, and investors might still be underestimating the total addressable market for AI.
4) Tech-Related Sectors Begin Gaining Momentum Again, While Industrial, Financial, and Energy Sectors Start Losing Steam
Sectors poised to benefit from "Trump 2.0" — namely, Industrial, Financial, and Energy sectors — began to experience corrections in December. These sectors may have overpriced Trump-related optimism, leading investors to shift focus back to long-term secular trends, particularly AI-related sectors.
Tech-related sectors, including Technology, Consumer Discretionary, and Communication, have continued their rallies into December.
Conclusion:
US stocks still appear constructive in December and January.
Despite rising tariff uncertainties, investors may still scramble to snap up stocks by December in an effort to make up returns relative to benchmark indexes like the S&P 500 and Nasdaq.
Based on seasonality, it may be wise to start considering a pivot to lower-risk, defensive assets after Trump’s inauguration (January 20th).
Given the ongoing boom in AI and technology, sectors related to these trends may continue to outperform in the coming months, especially as broader market sentiment turns cautious.
I remain constructive on tech-related stocks and ETFs, such as the Magnificent Seven, SMH ETF $VanEck Semiconductor ETF(SMH)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , Broadcom $Broadcom(AVGO)$ , Arm $ARM Holdings(ARM)$ , AMD $Advanced Micro Devices(AMD)$ , and Oracle.
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Analyst @Tiger_James Ooi remain constructive on tech-related stocks and ETFs, such as the Magnificent Seven, SMH ETF $VanEck Semiconductor ETF(SMH)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , Broadcom $Broadcom(AVGO)$ , Arm $ARM Holdings(ARM)$ , AMD $Advanced Micro Devices(AMD)$ , and $Oracle(ORCL)$ .
Hooray, since 1950, the second half of December has had the highest likelihood of a positive return for any half-month of the year. It also boasts the highest average return of 1.35% for the $.SPX(.SPX)$ .