Ho, ho, ho... The S&P 500 ran 1.32% last Thursday, or 2.28% for the holiday shortened four day market week. The Nasdaq Composite performed just as, if not more spectacularly, at up 0.85% for the day, and 3.19% for the week. For those who thought that Santa had arrived, maybe he had, but he was just a touch early. Wall Street's fabled and highly unofficial "Santa Claus Rally" officially (though as we just mentioned this whole ball of wax is indeed unofficial) only covers the last five trading days of December and the first two trading days of January. This means that by tradition, the period only starts today (Monday, December 27th) and wraps up next Tuesday (January 4th). How the lack of a "New Year's" market holiday this year impacts the length of that period, I am unsure.
How the alarmingly rapid speed of the spread of the Omicron variant of the SARS-CoV-2 coronavirus impacts all things, to include economic, and market performance not to mention basic human interaction, none of us can know either. For, I don't think anyone projected the sheer numbers of new infections seen around not just this nation, but around the globe. Fortunately, hospitalizations related to Covid-19 are rising more slowly than the pace of infection. Extremely unfortunately, hospitalizations among children, who largely remain unvaccinated, are rising far more rapidly than is the rate of hospitalization for the population in general.
Last week, equities rallied back to what might quite honestly be termed a "stall" or a "shelf." The S&P 500 has peaked somewhere between 4713 and 4743 for six of the past seven weeks, forming what has been a wall of resistance that has been set at all-time high levels. The Nasdaq Composite has seen weekly highs trend slightly lower over that same period, so while the S&P 500 closed mere points below a new all-time high last week, the Nasdaq Composite went to sleep on Christmas Eve still standing 3.4% short of that mark.
Perhaps more interesting than large-cap performance, which was obviously strong but on lighter trading volume, was small to mid-cap performance. The Russell 2000 has finally fought it's way back to the doorstep of it's own 200 day SMA, which was surrendered back in late November and last tested from below about three weeks ago. Given that the service I use for these articles can not use Russell indices, I will make use of the iShares Russell 2000 ETF (IWM) and the Vanguard Russell 2000 ETF (VTWO) to illustrate...
Traders of smaller cap names will note that the S&P Small-Cap 600 and the S&P Midcap 400, though performance looks similar, are further along in their recovery and both threaten their respective 50 day SMAs having already recovered their 200 day lines...
Oddly enough, on all four of these charts there exists a gap just to the north created back around Thanksgiving after the Omicron variant had first been identified, and that has remained unfilled ever since. This gap simply does not exist on the chart of the Russell 2000 itself.
The Week Ahead
Outside of Santa's potential visit, the week has a thin look to it. The U.S. domestic macroeconomic calendar is about as light as it ever gets, the highlight probably being the home price indexes for October on Tuesday morning. Earnings releases will be thinner than thin. The Fed is in "hiding for the holidays" mode. Congress is not in session, you know, because they needed more time off. (Who knew, growing up, that elected office provided full-time pay and benefits for part-time work?) Yesterday (December 26th) was the first day of Kwanzaa, which will run the course of the week, wrapping up on Saturday. Investors should probably know that Taiwan Semiconductor (TSM) will hold that firm's SEMICON conference this Tuesday through Friday.
More about Santa and seasonality? Okay. Using just a 15 year window, because this way we do capture the "Great Financial Crisis" and all relevant (post-human involvement in price discovery) information... The S&P 500, for the final week of the year... has posted a positive return 67% of the time (10 times out of 15) for an average return, including down years, of 0.88%. Over those 15 years, using S&P sector-select ETFs as proxies, Energy (XLE) has been the strongest "final week" performer with an average return of 1.32%, followed by Communications Services (XLC) at +1.31%, Technology (XLK) at +1.06%, Financials (XLF) at +0.94%, and Consumer Discretionaries (XLY) at 0.93%. Just an FYI, the REITs (XLRE) , thought that sector has not existed for 15 years, Utilities (XLU) , and Health Care (XLV) have all posted slightly negative average returns for the window studied. I personally did add both Chevron (CVX) as quality and Apache (APA) to my portfolio for what probably will amount to weekly rentals. Over the same 15 years, Chevron has returned an average of 1.71%, while Apache has averaged an even 3% increase. ConocoPhillips (COP) , averaging a 2.55% gain for the final week of the year over the past 15 years, is already a core position on my book.
The Omicron variant of this darned virus is spreading so quickly, and at least anecdotally appears to impact most individuals less severely than prior variants, that perhaps the best hope for humankind might be that this variant burns itself out before it can mutate again.
In the meantime, the CDC has revised its isolation and quarantine guidelines for healthcare workers to seven days from 10 following a negative test in order to help alleviate shortages of available labor in such key positions. Beyond that, New York Gov. Kathy Hochul, ordered that critical workers (healthcare, education, transportation, sanitation, grocery) in the state who test positive for the virus may conditionally return to work after five days as shortages of available labor across those occupations have hit the state hard.
All anyone had to do this weekend was watch the news, or try to travel by air to see how badly the airlines have been crippled by new infections impacting staff. Has anyone tried to watch sports lately. The National Hockey League called a broad "time-out", canceled cross-border travel and informed their players under contract that they would not be permitted to represent their countries in this year's Beijing Winter Olympics (which appear to still be on schedule.). Meanwhile, the National Basketball Association and National Football League have tried to carry on with a diminished on-field product. In addition, several college football bowl games have had to be canceled due to a lack of available players.
Roche Holding AG (RHHBF) announced late Friday that its new "at-home" Covid-19 test that does detect all known variants of concern including Omicron, had been granted "emergency use authorization" by the FDA in the U.S. Roche says that the firm can, through an agreement with SD Biosensor, produce tens of millions of tests per month.
Prior to the Christmas break, Wedbush analysts Dan Ives and John Katsingris penned some opinion regarding the cybersecurity space going forward. "The threat landscape and bad actor-nation state backdrop continues to accelerate, coupled by an aggregate move by enterprises and governments to the cloud which has multiplied the threat vectors facing CIOs. This has created a massive land grab opportunity for those well positioned cyber security vendors with the right products and value proposition."
My opinion has long been that I must be invested in cybersecurity regardless of valuation as demand for these services may not dwindle in my lifetime (opinion). There will likely be some consolidation, but the business will be there for as long as the internet, the cloud and what comes next (Metaverse/Omniverse?) is there. My chosen name in the space has been Zscaler (ZS) for quite some time.
Ives and Katsingris go on to name Palo Alto Networks (PANW) and Tenable (TENB) as their top two cybersecurity firms for 2022, while also including Zscaler, CyberArk (CYBR) , Varonis Systems (VRNS) , Sailpoint Technologies (SAIL) , and Fortinet (FTNT) as favorites. Personally, I remain long PANW, and if you were on that Twitter Spaces call led by TheStreet's Katherine Ross last Wednesday, then you know that I accidentally sold all of my ZS when I tried to sell a partial. That was a fantastic trade, so I can not complain, but I have not had the chance to re-enter intelligently just yet.
Economics (All Times Eastern)
10:30 - Dallas Fed Manufacturing Index (Dec): Expecting 9.5, Last 11.8.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly financial scheduled for release.