December 27, 2023 – U.S. equities find themselves at or above an overbought state, a condition that may not hold significant implications in the absence of conflicting economic data. The current market juncture aligns with the onset of the “Santa rally” window, a designated period spanning the final five sessions of the year and the first two sessions of the new calendar. However, the unofficial start of the Santa Rally window traces back to November when Fed Waller signaled a shift in front-end rates.
The year 2023 has already witnessed a robust Santa rally, with the S&P showcasing an impressive 16% increase from late October lows through Christmas. This substantial market performance during the specified period solidifies the presence of a Santa rally, leaving little room for doubt.
Apart from the customary Santa seasonality, any additional gains observed for the remainder of this week may be attributed to the heightened probability of a soft landing, as indicated by the latest round of impactful macroeconomic data from the United States.
In summary, the prevailing sentiment indicates a “risk-on” environment in U.S. markets, with renewed optimism centered around anticipating swifter and earlier rate cuts. As the Santa rally unfolds, investors closely watch economic indicators to gauge the sustainability of the current market momentum.
