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