A conformist Santa Rally
This year’s Santa rally is doing what many of its predecessors have done. The stock market continues to push higher on thin volume and with no need for a macro catalyst. At the moment, the market is all about sentiment and perceived value.
However, after substantial gains since mid-December, it would not surprise to see some caution returning to the market in the New Year. The banks and big supermarkets have been key drivers of the year-end rally in the ASX 200. However, with stocks like CBA now up 11% since mid-December and Wesfarmers up 13%, value is becoming less obvious
At current share prices, the December quarter sales reports now represent more of a risk for retail stocks which have enjoyed a good run in the Santa rally. The market appears to have become more confident about the Christmas sales. However, stocks like Woolworths that have ongoing strategic issues are becoming more vulnerable to a sell-off should their sales report fail to meet improved expectations.
This week’s US oil inventory data looms as the last significant data set for the 2015 trading calendar. Last night’s oil market rally increases the potential for volatility surrounding the inventory data. The market is expecting a further cut in inventories following the big drop last week. How this plays out could influence short term sentiment towards the entire commodity complex as we head into the New Year
Frequently Asked Questions about this Article…
A Santa rally refers to the tendency for the stock market to rise in the last week of December through the first two trading days in January. This year, the market is experiencing a Santa rally, pushing higher on thin volume without a macro catalyst, driven by sentiment and perceived value.
Banks and big supermarkets have been key drivers of the ASX 200 rally due to their substantial gains since mid-December. For example, CBA is up 11% and Wesfarmers is up 13%, contributing significantly to the year-end rally.
Retail stocks face risks after the Santa rally as their current share prices make them vulnerable. The December quarter sales reports now pose a risk, especially if they fail to meet the market's improved expectations, potentially leading to a sell-off.
The US oil inventory data is significant as it could influence short-term sentiment towards the entire commodity complex. With the recent oil market rally, there's potential for increased volatility, especially if the data shows a further cut in inventories.
The market appears more confident about Christmas sales, which has contributed to the positive sentiment driving the Santa rally. However, this confidence also means that retail stocks are at risk if sales reports do not meet expectations.
Value is becoming less obvious in the current market because stocks have seen substantial gains since mid-December. As prices rise, it becomes harder to identify undervalued opportunities, leading to potential caution in the New Year.
Woolworths is facing ongoing strategic issues, making it more vulnerable to a sell-off if its sales report fails to meet improved expectations. These issues could impact investor confidence and stock performance.
Everyday investors should approach the market with caution after a Santa rally. With substantial gains already realized, it's important to assess the potential risks associated with high share prices and upcoming sales reports, especially in the retail sector.
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