December 28, 2018 Weekly Market Recap

The S&P 500 rallied 2.9% during a week that featured its worst Christmas Eve in history, a historic rally (+5% in one day), and a stunning reversal in late trading action. Wall Street’s end-of-the-year Santa Claus rally, which began taking shape on Wednesday, has pared the benchmark index’s monthly decline to 9.9%.

The Dow Jones Industrial Average (+2.7%), the Nasdaq Composite (+4.0%), and the Russell 2000 (+3.5%) also cut their monthly losses to 9.7%, 10.2%, and 12.7%, respectively.

Nine of the eleven S&P 500 sectors finished the week with gains, with consumer discretionary (+4.7%), information technology (+3.9%), communication services (+3.6%), and financials (+3.3%) leading the advance. The utilities (-1.9%) and real estate (-0.1%) sectors were the lone groups to finish with a loss.

Investors had to wait for the rally, though. The holiday-shortened trading week began with a continued selling effort, which left Wall Street with little Christmas joy.

Nevertheless, the belief that the market had become deeply oversold, in conjunction with rebounding oil prices, strong holiday sales, and some short covering, helped drive the S&P 500 to its best one-day gain (+5.0%) since March 2009.

What ensued was an unsurprising inclination to sell into strength. What surprised many, however, was the reemergence of the buy-the-dip mentality that carried stocks from steep losses to notable gains in the same session. Many attributed the late reversal to pension fund rebalancing activity, but short-covering and a rush of speculative buying interest likely played a contributing role in turning things around in such a hurry.

More so, the ability to hold up this week in the face of bad news, which included the partial government shutdown, softening economic data, and the European Central Bank highlighting an expectation for slower global growth in 2019, added to the bull case for a sustainable rebound heading into 2019.

The bond market, though, signaled a more cautious-minded mentality with risk-free U.S. Treasuries remaining resilient to selling efforts. The 2-yr yield declined nine basis points to 2.52%, and the 10-yr yield declined five basis points to 2.74%. The U.S. Dollar Index fell 0.6% to 96.34.

Source: Briefing Investor