December 26 – Will there be a Santa Claus rally – defined as strength in the market between Christmas and New Year – to close out 2024? Those traders still engaged in the markets are debating that this morning, with stock futures pointing lower this morning after Monday and Tuesday’s gains raised hopes for the seasonal rally. Trade volume should again be thin today, as well as tomorrow, but the underlying tone on Wall Street reflects a sense of cautious optimism, despite rising Treasury yields. Traders believe that more central bank rate cuts are coming. They also believe that President-Elect Trump will deliver more tax cuts and deregulation in the coming year to spur the economy. China also seems to be ramping up its efforts to stimulate its economy. The market isn’t without concerns, but traders are currently looking at the world through a lens of cautious optimism. The VIX is trading near 15 this morning, down from last week’s spike above 28, while the dollar index consolidates near 108.2 in quiet trade. Yields on 10-year Treasuries are trading near 4.64% this morning after posting fresh nearly seven-month highs, while yields on 2-year Treasuries are trading near 4.36%, as they crawl along just below the 200-day moving average on the charts. The steepening yield curve highlights some of the mounting fiscal debt issues for Washington to deal with over the next couple of years, but that’s an issue that Wall Street would prefer to focus on at another time. Crude oil prices are modestly higher, while the grain and oilseed markets are still waiting for a hard open this morning following the Christmas break.
First-time claims for unemployment benefits fell to 219K in the week ending December 21, down from 220K the previous week and below analyst expectations of 223K claims. The four-week moving average rose by 1K to 226.5K. Continuing claims for the week ending December 14 surged by 46K to 1.910 million, which is its highest level since November 13, 2021, when it was 1.974 million. The four-week moving average for continuing claims rose by 3,250 to 1.881 million. The weekly claims numbers remain within the range of historical norms. However, the surge in continuing claims reflecting long-term difficulty in finding a new job need to be watched. The unemployment rate remains at a historically low level. One of the concerns of policy doves though is evidence that the makeup of the new jobs created each month is shifting toward lower quality jobs. The hawks will argue that firms have simply been waiting for the anticipated Trump tax cuts and deregulation before engaging in expansion that will create more quality jobs. For now, employers seem reluctant to add a lot of new job positions, but we’re also not seeing big layoffs – employers are hanging onto the workers that they currently have due to their memory of how hard it was to fill those positions over the past few years, but they’re not laying off workers over economic concerns.
Wall Street will be assessing data from the holiday shopping season just past as the numbers come in. Early indications from the National Retail Federation suggest that holiday sales may have reached $890 billion this year, which would be up by nearly 20% from last year’s $743 billion. There will be a plethora of data coming out over the next month assessing the health of the economy in the month plus prior to Inauguration Day that will have a big impact on monetary policy. Fed fund futures are currently trading expectations of just one more rate cut over the coming year, which is even more hawkish that the Fed’s own projections and a sharp departure from market expectations in September. Yet, the major stock indices continue to trade just below recent record highs as the market adjusts to those expectations.
Will the United States re-assert control over the Panama Canal? President-Elect Trump spurred considerable speculation when he commented recently that the United States should do so. The canal is critical for U.S. shipping to key markets in Southeast Asia, whereas most Brazil exports to the region travel the opposite direction around the southern end of Africa. Like the tariff threats, Trump is not likely to take control of Panama, but he is likely working to position himself for negotiations. Panama is a critical link for securing the U.S. southern border. A large portion of those immigrants pouring across the border with Mexico pass through the narrow nation of Panama – coming up from the south. Trump also likely wants to secure commitments that Panama will not allow China to exert its influence in the region to possibly control canal usage that is so critical for U.S. commerce and military movement.
The grain and oilseed markets are expected to continue the patterns of recent days in thin holiday trade, barring any surprise headlines that might emerge. That means that more light volume choppy action is likely. Managed money continues to affirm its commitment to the corn market, while it remains bearish soybeans and wheat. However, tightening Black Sea fundamentals at least provide some hope for turning sentiment in the wheat market in 2025, whereas soybean bulls have many unanswered questions before they can make a case – currently large South American production expectations and worries about soft U.S. domestic demand from the biofuel industry.
