Will Santa Visit Wall Street? Technicals are Key
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, December 23rd.

The holiday week opens with some cheer left in stockings from Friday's rebound, triggered by better-than-expected November inflation data. A consumer confidence reading later this morning and a two-year Treasury note auction are possible highlights after a challenging week marked by squabbling in Washington, D.C., and worries over the interest rate path.

This week is going to be light on the economic front. There are no earnings reports on the calendar, and there are only three and a half days of trading, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Perhaps last week's midweek sell-off was a healthy correction to help shake off some of the speculative excess that had been cropping up in the stock market.

Friday featured a 1% rally in major indexes and a slide in Treasury yields following better-than-expected personal consumption expenditures or PCE prices data, but stocks finished well off their intraday peaks. The S&P 500 index ended just above its 50-day moving average of 59.27, a positive development. From a technical perspective, things look bullish if the S&P 500 stays above that, Pearson said.

Likely low volume this week, with trading closing early tomorrow and shut for Christmas Wednesday could make it hard to get a sense of market conviction. Whatever happens the next two weeks, keep in mind that it might not reflect any serious underlying trends, and things could quickly go different directions when the holiday season ends.

That said, the week between Christmas and New Year's sometimes brings the Santa Claus rally, and Friday's bounce could more easily extend into the new week due partly to lower volume but simply means less potential selling to counter it.

However, there's a chance some of the Santa Claus effect got pulled forward by excitement surrounding the U.S. election and by fund managers preemptively buying 2024's winning shares in a window-dressing move before sending out final annual reports to their clients.

The Conference Board's December Consumer Confidence Report comes out soon after the opening bell today. Consensus for headline consumer confidence is 113, up from the prior 111.7 and from pandemic-era lows below 100. But the inflation aspect of the data is front and center after Friday's University of Michigan final December Consumer Sentiment Report showed one-year inflation expectations edged lower to 2.8 percent from the preliminary 2.9 percent.

That was above 2.6% in November, and the Federal Reserve closely watches this metric. So does the Treasury market, which remains in a downtrend despite Friday's small rally. Speaking of Treasuries, the two-year note auction today is likely to get a close look, just like every auction at this point, considering current high debt levels and swollen Treasury yields. Any lack of buying interest might push Treasury yields higher, with corresponding pain for stocks.

Still, any auction this time of year could see light demand. The pain eased Friday after November's Personal Consumption Expenditures, or PCE, price index rose 0.1% for both headline and core PCE, compared with analysts' consensus of 0.2%, some rare good news on inflation after a week dominated by price fears and a cautious Fed outlook on rates.

CorePCE extracts food at energy prices, and PCE is the Fed's favorite inflation indicator. Annual headline PCE was 2.4% below the consensus 2.5%, while annual CorePCE rose 2.8% below the consensus of 2.9%.

The S&P 500 index added 63.77 points or 1.09% Friday to 5,930.85, down 1.99% for the week. The Dow Jones Industrial Average climbed 498.02 points or 1.18% to 42,840.26, down 2.25% for the week.

And the Nasdaq Composite gained 199.83 points, or 1.03%, to 19,572.60, but fell 1.78% weekly. Meanwhile, the closely watched 10-year Treasury yield gave back a little bit to 4.52%, but remains near seven-month highs and could continue to help direct traffic on Wall Street. This has been the Schwab Market Update Podcast.

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