The Santa Claus Rally Interrupted

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In his Daily Market Notes report to investors, while commenting on the Santa Claus rally, Louis Navellier wrote:

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Santa Claus Rally Interrupted

The market bounced roundly yesterday after the Fed only said what was expected, and more or less described inflation as transitory without using the word.

Jay Powell also made it clear if things don't go right they stand ready to react. It was a dovish conversation, the Fed Put is alive and well. Premarket this morning it looked like the Santa Claus rally had finally begun with all the Indexes up strongly on the heels of the surge through the end of Wednesday. But in less than an hour, the NASDAQ and SPX both went red.

Defensive sectors are trading best. Interest rates pulled back despite the Fed not only confirming the rapid tapering of QE but also laying out the likelihood of 3 rate increases in 2022 and 3 more in 2023, where they hope to see the Fed Funds rate equal to inflation.  Then the UK actually raised rates this morning, while the ECB confirmed no intention to raise rates in 2022.  It's a mixed bag of uncertainty regarding inflation versus monetary support from central banks. 

Divergent Central Banks

Perhaps most unsettling today is that interest rates have slacked back to pre-Fed announcement levels, which is non-intuitive given the very negative real rates and confirmation by the Fed that they will be pulling away the punchbowl. In the big picture, stocks remain near all-time highs, the VIX is back below 20, fixed income remains unattractive, crypto has been unattractively volatile lately, and the market has been increasingly focused on real earnings and pricing power. Expect a year-end rally and a strong January.

Coffee Beans

A Virginia man who won a $100,000 lottery prize in 2002 returned to lottery headquarters nearly two decades later to collect a $1 million jackpot. The man said he used his usual numbers when he bought his Cash4Life ticket at the 7-Eleven store in Suffolk. Source: UPI