12/18 Daily Market Note: Markets Melt Higher as Santa comes to town
12/18 Premium Strategy Note - Stocks only go up
Hi folks –
December’s strong market seasonality continues the melt up higher into year end as capital flows into multiple sectors and themes, driving the S&P 500 to command a 19.5X Forward P/E multiple. Investor confidence is strong as the AAII Sentiment readings now suggest bearish sentiment has evaporated in the last 45 days. The Fed’s recent December FOMC meeting has been an inflection point for lower yields and higher stock prices. My inter-market analysis suggests that advances will continue for the broad market at least until the new year. The Buyside is convinced that the Fed is going to do more than 3 rate cuts next year, and that is pinning the broad indices towards their range highs until any evidence proves otherwise.
Over in Asia, China’s central bank gave commercial lenders $112 billion of one-year loans last week, which acts as a point of liquidity to reduce concerns over a credit crunch due to government debt issuance. On top of additional liquidity, there is additional policy updates on a modest relaxation of home buying restrictions in Beijing and Shanghai, which will increase the allure of Tier 1 cities in China. The Hang Seng Index and Hang Seng Tech Index both staged a very strong short-squeeze rally last week, offering us an opportunity to close our Call options at 20-40% gains across BABA, KWEB, and TCOM. As is often discussed in our Community, China stocks are currently a trading landscape and my hope is that I can revise my opinion so that the sector is more investment (long-term) friendly once the property landscape stabilizes further. I remain constructive on China but believe the next leg up will require some more time as the next move is likely choppiness.
Positioning Guidance below