(Justin Vaughn, Editor, Options Trading Report)
Is Santa Claus Coming To Wall Street? The so-called ‘Santa Claus Rally,’ at year-end is fast approaching. A Santa Claus rally is one where stocks climb higher in the final five trading sessions of the year and into the first two sessions of the new year. This year end-trend–identified by the authors of the Stock Traders Almanac–says the markets rally every year at this time. The Santa Claus Rally has delivered ‘gifts’ for stock investors for the past five years, according to Dow Jones Market Data. Aside from the seasonal ‘lore’, that period typically marks the end of harvesting of tax losses for the old year and getting a jump on the January rally, which involves ‘snapping up the losers by tax-related selling. The rally might be hard to pull off this year, amid the volatile pandemic climate, and the hanging inflation. Over the past 92 years, the S&P 500 gained 77% of the time during the Santa Claus Rally period. The actual average gain in this seven-day trading period is 2.66%. Is Santa coming? 92 years of data says…..maybe.
The S&P 500 scaled another high…as all major indices were positive. Even as Covid and its variants spread, investor optimism is near all-time highs. After a Monday setback, the S&P 500 surged up to a record high of 4725 by Thursday’s close, (short holiday week) finishing the week up 2.3%. The Nasdaq Composite rose 131 points, as the techs showed some muscle, to 15653. The Dow Jones Industrial Average added 196 points and finished the shortened week at 35950. Data from the Commerce Department showed that the U.S. consumer spending growth cooled a bit in the last month. The ‘personal-consumption’ expenditures price index, excluding food and energy, (a gauge of inflation), in November, rose 4.7% from a year earlier. “This week’s gains in the market suggest investors remain focused, and bullish on the pandemic’s trajectory,” said Greg Bassuk, chief executive of AXS Investments, an asset management firm. Developments in the Covid-19 treatments and readily approaching oral pills (Pfizer and Merck) seem to be contributing to investors’ higher expectations of continued recovery in 2022, despite the spread of the Omicron variant, Mr. Bassuk added. “We believe Covid is still the investor narrative.”
A Second Chance For Nuclear Power…..Many governments are reconsidering nuclear power, given its ability to provide carbon-free, and predictable energy. Fission, the splitting of atoms to release energy was ‘all the go’ in the sixties and seventies. Nuclear fell from favor after the massive disasters at Three Mile Island, Chernobyl, and Fukushima. Add in the exorbitant costs of electricity from these costly reactors and you have a recipe for looking for efficient alternatives. The big question now is whether ‘new’ technologies might lower costs, and actually work. President Biden’s $1.2 trillion infrastructure bill included at least $8.5 billion for nuclear energy. The European Union is considering classifying nuclear as ‘green.’ Britain Russia, China, Japan, and South Korea all want to be involved. Political backing is important, given the costs and challenges of building new, higher-tech, reactors. Much skepticism surrounds nuclear power in ‘the 21st’ century. According to ‘Lazard,’ cost of nuclear is between 121-204 a megawatt-hour, much higher than nearly all other energy forms. And nuclear power now is even more costly than half a century ago, using those ‘old’ reactors. This potential source of electric power is costly, yet readily a solution. One approach uses existing technologies to build small modular reactors, known as SMR’s. They generate anything from a few megawatts to 500, compared with around 1000 or more for a typical reactor of olden days. Many countries are trying to build modular reactors, using this new technology such as ‘novel’ nuclear fuels or cooling systems involving salt instead of water. These advanced designs are intended to reduce the risks of accidents and build more flexibility for power. These latest nuclear technologies, SMR’s, using advanced high tech have a chance to prove their viability, and hopefully become cost-effective. This ‘old’ idea (fission) may indeed be an answer for ‘carbon-free-energy.’
RUMBLINGS ON THE STREET
Doug Clinton, Loup Ventures, managing partner, Barron’s “The Fed’s upcoming rate hikes could complicate tech’s long rally, 2022 might be the year of the discerning investor, after the year of the meme investor and the SPAC speculator.”
Marko Kolanovic, strategist, JPMorgan, Barron’s (wrote in a client note on Friday) “On average U.S. stocks are down 28% from their highs this year, while the broad market (as measured by the Russell 3000) is up about 22%: “Such a divergence is unknown to us, and indicates a historically unprecedented overshoot in selling smaller more volatile, typically value and cyclical stocks in the last four weeks.”
Ed Yardeni, Economist, CEO of Yardeni Research, Barron’s “Consumer and capital spending will…drive the economy next year, but will return to a more normal growth rate.”
Mike Meehan, Young Investor, Bradenton, Fla., Barron’s “Yield plus price appreciation is a powerful catnip for a boomer investor like myself.”
Dr. Eric Topol, director of the Scripps Research Translational Institute, on FDA authorization of Pfizer’s anti-Covid pill. Barron’s “It’s the biggest thing to happen in the pandemic after vaccines.”
Vitaliy Katsenelson, CEO of IMA, a value investment firm in Denver, Barron’s “Capitalism is far from perfect, but it is the best system we’ve got.”