A Break In The Year-End Rally

It appears that stocks are following the traditional holiday pattern here as the market tends to take a little break a few days before Christmas only to continue the year-end rally the following week.

The current near-term weakness is likely tied to concerns about Italy’s banks in general and more specifically, the travails of Banca Monte dei Paschi di Siena SpA. Reports indicate that the world’s oldest bank has been unsuccessful in lining up a buyer of the stock offering intended to raise the €5 billion it needs by year end. The good news for the broad market is that the Italian parliament voted to boost public debt by €20 billion, which should be more than enough to rescue the embattled bank but not enough for a broader bailout of the banking system.

On a more positive note, the latest revision to Q3 U.S. GDP came in at a 3.5% annual rate, which was higher than expectations (consensus was for the growth rate to come in at 3.3%) and the previously reported 3.2% rate. This represents the strong growth since the third quarter of 2014 and follows the second quarter’s rather weak 1.4% rate. In addition, the consumer spending component of the report increased at a 3.0% rate, which was also better than the previous reading of 2.8%.

In response to the mixed news this morning, stocks have opened slightly lower.

Finally, I’d like to with everyone Happy Holidays!

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

    1. The State of the “Trump Trade”

    2. The State of Global Central Bank Policies

    3. The State of U.S. Dollar

    4. The State of Bond Yields

Thought For The Day:

“Man. He sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present: the result being that he does not live in the present or the future: he lives as if he is never going to die, and then dies having never really lived.” — The Dalai Lama