As we head into a half-day session here on the Friday after Thanksgiving, seasonality has played out pretty much as expected. The market closes at 1 p.m. ET today and the odds favor a positive session.
Market players are aware of the seasonal inclinations and have helped to make them self-fulling to an extent, but things change next Monday when the odds favor a negative session. The question we have to ponder is whether market players will start to anticipate a pullback on Monday before we wrap up holiday trading.
There is still a 75% likelihood that the Fed will raise rates by 50 basis points rather than 75 basis points at its next meeting. However, there will be the November jobs report, another Consumer Price Index (CPI) report, comments from various Fed members and a speech by Chairman Jerome Powell before the Fed interest rate decision hits on the afternoon of Wednesday, Dec. 14.
The market also has been rather sanguine about continued Covid shutdowns in China. In response to the economic impact, the People's Bank of China announced a one-quarter percentage point cut in its reserve requirement starting on Dec. 5. That is giving the market a little boost this morning, but this headwind impacts things such as oil and the supply chain.
Market players are optimistic about a rally into the end of the year. The basis for that positive view is that inflation has peaked, the Fed is going to slow rate hikes, there is positive seasonality, and many market players are poorly positioned and will try to generate some relative performance in the last month of a terrible year.
The problem is that the macroeconomic environment is not showing great improvement. While there may be some progress on inflation, it comes with the cost of slowing economic growth, and many market strategists are not convinced that the low growth has been discounted by the market. Both Goldman Sachs and Bank of America expect the S&P 500 to be close to flat in the year ahead.
It will be a thin session on Friday and it normally has a positive bias, but the bears will be back at work on Monday and will be looking to take advantage of the holiday week run-up.
