The stock market rally which was triggered by the Fed’s rate hike decision earlier this week has started to ease off as both the dollar and equities have started to ease off. Most of the major economic data that moves the market is pretty much over for this year and this is clearing the stage for a Santa Claus rally.
Some may argue that the rally, which usually lasts from the last five days of December to the first two days of January, began earlier this year. However, the challenges opposed by the COVID-19 variant has thrown several obstacles. Having said that, we may see the Santa rally coming back but the trading volume is likely to be thin as most traders.
Forex
The USD sank after the Federal Reserve anticipated three rate rises next year, while the EUR surged after the European Central Bank suggested a rate hike in 2022 is quite improbable. Many of our readers may find the price activity in forex over the previous 48 hours bewildering. The Philadelphia Fed index fell to 15.4 from 39, while unemployment claims increased to 206K from 200K in the United States. Building permits and housing starts remained strong.
The pound rose as well as the Bank of England startled the market by raising interest rates for the first time in three years. No one anticipated the central bank to tighten in response to the latest COVID-19 limitations and the surge in Omicron instances, but the pressure is mounting. Inflation reached a ten-year high, and the central bank realized it couldn’t afford to wait any longer. The bank increased its base rate from 0.1 percent to 0.25 percent, a tiny but significant increase. With the market anticipating a second rise in February, the tightening cycle has begun. While today’s sell-off in EUR/GBP is small, we expect a larger drop below 84 cents tomorrow, especially if retail sales are high.
Asian Markets
The Asian stock market traded sharply lower on the final trading of the week. The Nikkei index plunged 1.66%. The Shanghai index decreased 0.90%, while the HSI index fell by 1.28%. The ASX index increased by 0.35%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth lost further momentum. 75% of the Dow Jones stocks traded above their 200-day moving average.
The S&P 500 stock breadth also confirmed a decline in momentum. 71% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading lower today. In terms of economic data, investors will be looking at the UK’s retail sales m/m. The forecast is for 0.8% which is the same as the previous reading. In addition to this, we also have the FOMC member Waller speaking later today which will traders some more clues about the Fed’s stance towards its monetary policy.
The Dow Jones futures are trading lower and it seems that the price is struggling to break above the previous high. Having said that the price continues to trade above the 50-day SMA on the daily time frame, which means bulls are in control of the price action for the time being. In addition to this, the Dow’s price is also above the 100-day SMA and the 100-day SMA continues to trade above the 200-day SMA.
As for the RSI, it isn’t really indicating that the prices are oversold on the daily time frame. Currently, the RSI is trading at 56.
The near term support is at 35232, while the resistance is at 36,178.
Stock Market Rally
The S&P 500 stock index closed lower on Friday; the index decreased by 0.87%. The consumer discretionary sector led the index lower, and 7 sectors advanced while 3 sectors closed lower.
The Dow index declined on the last trading day; the Dow stocks moved the index lower by 0.08%. 17 shares advanced, while 13 shares closed lower.
The NASDAQ composite, the tech-heavy index, closed lower by 2.47% yesterday as well.
S&P 500 Leaders and Laggards: Newmont and Adobe
Newmont Corp stock contributed the biggest gain, soaring 8.79%. Adobe stock was the largest drag; it fell by 10.19%. The S&P 500 stock index is up 22% so far this year.
Dow Jones Leaders and Laggards: Verizon and Apple
Verizon provided the biggest help for the Dow Jones; it advanced by 1.391%, while Apple inc. was the largest decliner, it fell by 3.92%.