A holiday-shortened trading week with the potential for a Santa Claus rally


A holiday-shortened trading week with the potential for a Santa Claus rally

U.S. equities finished higher on Friday following reports showing consumer inflation continued to ease last month, with consumers expecting price pressures to ease further in the months ahead. For the week, the Dow gained 0.9%, but the Nasdaq declined 1.9%, and the S&P 500 lost 0.2% as concerns about Fed rate hikes and the possibility of a recession weighed on investors. 

Next week will be a holiday-shortened one with U.S. markets closed on Monday, but could still be eventful with some investors likely hoping for a “Santa Claus rally” to close out the last week of the year on a high note. On Tuesday, the latest data on home prices will become available, with the S&P CoreLogic Case-Shiller National Home Price Index and Freddie Mac’s House Price Index (HPI) for October. On Wednesday, the National Association of Realtors (NAR) will issue pending home sales figures for November. The Chicago Purchasing Managers’ Index (PMI) for December, due on Friday, will also provide an update on the strength of the U.S. manufacturing sector.


U.S. markets will be closed on Monday
Markets could get a boost from a "Santa Claus rally"
S&P Global releases its Case-Shiller National Home Price Index on Tuesday
The NAR reports on pending home sales on Wednesday
On Friday, the ISM will release its latest Chicago PMI

The Latest Data on Home Prices

The latest data on U.S. home prices will arrive next week. On Tuesday, index provider S&P Global will release its Case-Shiller National Home Price Index for October, while mortgage originator Freddie Mac will issue its House Price Index (HPI) for the same month. Home prices as tracked by the Case-Shiller Index are projected to have fallen 1.2% in October, following a 1.5% decline in September and marking the fourth consecutive month of price declines. On an annual basis, prices likely decelerated further, rising by just 9.1% compared to a 10.4% gain in September. This would mark the slowest pace of annual price gains in over two years.

On Wednesday, the National Association of Realtors (NAR) will release data on pending home sales in November. Sales are projected to have fallen 0.5% in November, or over 30% from a year earlier. Pending home sales have fallen for 11 of the past 12 months, as rising mortgage rates, declining affordability, and limited inventory weigh on housing demand.

Purchasing Managers' Index (PMI)

On Friday, the Institute for Supply Management (ISM) will release the Chicago Purchasing Managers’ Index (PMI) tracking manufacturing activity across the Midwestern U.S. The Chicago PMI likely declined further in December after tumbling to 37.2 points in November, which was down from 45.2 points in October. Last month’s PMI reading was the lowest since June of 2020 as an economic slowdown in recent months has impacted the U.S. manufacturing sector. Any reading below 50 indicates a contraction in business activity.

Will There Be a Santa Claus Rally?

While there’s no guarantee, it’s possible markets could get a boost from a “Santa Claus rally,” which is the tendency for the stock market to rally either just before or after Christmas. Though markets are lower for the month so far, looking at historical price data, December has been one of the strongest months of the year for U.S. stocks with an average gain of 1% for the S&P 500 since 1950. And over the same period, the S&P 500 has gone up an average of 1.3% over the last five trading days of December and the first two of January, according to the Stock Trader’s Almanac. There is no definitive explanation for why stocks tend to rise at the end of the year, but some theories posit that holiday shopping, seasonal optimism, and institutional investors settling their books could have helped fuel the trend.