Week Ahead on Wall Street (SPY QQQ): All aboard, last chance for the Santa rally

Equity markets remain in a state of flux as we approach the final full week of the year. The traditional Christmas lunch season is curtailed, so next week may see some activity after all. The seasonal Christmas rally has yet to materialize and time is running out. The Fed played its part by meeting market expectations and treading a cautious path. The initial enthusiasm was quickly turned around as domestic political squabbles hit equity sentiment. Build Back Better was to be the grand plan for the Biden administration and so far Senator Joe Manchin has been a notable roadblock. The plan shows no signs of passing any time soon with reports that President Biden and Senator Manchin are miles apart in reaching an accord. Stocks would like another stimulus kicker to head into the holidays but they are not going to get it. This saw some derisking in infrastructure and green stocks on Thursday. Tesla and Apple then also dumped which meant, with their now oversized weightings in the main indices, that it would likely be a red day overall. So it proved with Tesla down 5% and Apple down 4%. Growth stocks were the catalyst as growth stocks need that stimulus plan.

Central Bank week in review

This week was central bank week. The Fed, Bank of England, and ECB all met to set bond purchasing programs and interest rates going forward. The Fed managed to perform its usual market-friendly trick. To be fair they had prepared the market thoroughly in advance, as they usually do. Increased tapering and 3 rate hikes are likely for 2022. The Bank of England by contrast, surprised markets for the second month in a row by hiking 15 bps after surprising with an unchanged decision in November. The ECB meanwhile will taper but no hikes are likely in 2022. 

All this rate-hiking combined to set a transformation from growth to value as detailed above. Whether this trend continues into 2022 we doubt. The US economy will remain strong in our view throughout 2022 with inflation growth slowing in H2. Corporate earnings and record buyback levels will further underpin equities. You can read all about it in our S&P 500 yearly outlook here.

S&P 500 technical analysis

The S&P 500 (SPX) has been knocking on the door of 4,700 for some time now but really falling to get through. The more a level is tested the weaker it becomes so we expect a firm break next week. The RSI remains low but above 50 and the MACD is crossed bullishly. 

The number of stocks making new highs is often used as a breadth indicator but the number of stocks making new lows is useful for bearish sentiment. This appears to have bottomed out, well topped out is the better terminology. But you get the idea, fewer stocks are falling, phew I got there in the end!

Earnings week ahead

A few party poopers are out next week most notably Nike (NKE) and General Mills (GIS). Old meme stock favorite BlackBerry (BB) also sneaks in before Christmas. They haven't gone away you know, the meme stock traders. Notice AMC stock up 22% and counting today. Blackberry may provide the final flourish for the year.

Economic releases due

Does anyone fancy working late on Christmas eve to wait for the oil rig count… I thought not! Wednesday and Thursday see some good data to get trading into, Friday is for last-minute shopping and having fun. The PCE  is the Fed's favourite inflation gauge, so we will get an early read next week on how appropriate the new hawkish Fed is.

This is the last weekly guide of the year so thank you for sticking with us. If you have any suggestions or comments please give us some feedback below. Favorite Christmas songs, movies, etc. All feedback is welcome!

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