When the closing bell was sounded at the New York Stock Exchange on Thursday, it marked the end of a downbeat day and dampened hopes of a Santa rally.
“Investors are being defensive today,” Matt Maley, chief market strategist at Miller Tabak + Co. told Bloomberg. “They’re not jumping back into the market with both feet. So, if we don’t get some relief from the bond market soon, there might not be a Santa Claus rally this year.”
Sentiment has been weakened this week following the Fed’s decision to cut rates by 25 basis points and signal a more cautious trajectory for rate cuts in 2025.
Continued strong economic data Thursday including GDP and consumer spending may be a positive for now but stokes fears of inflation running away from the Fed’s target again, adding to concerns of equity investors.
The CNN Fear and Greed Index moved into its Extreme Fear category, indicating slowing momentum and reflecting Thursday’s sell-off which saw the S&P 500 end 5 points lower at 5,867.08.
However, the Santa rally, if there is one, would not officially start until Christmas Eve and run until January 3, 2025, so underlying sentiment may give a better clue to what may happen.
The latest weekly AAII Sentiment Survey released Thursday revealed a slight dip in bullish sentiment – the view that stock prices will be higher over the next six months – with a drop of 2.6 percentage points to 40.7%. However, this is above the 37.5% historical average which has been the case for 57 times in the last 59 weeks.
Bearish sentiment was also slightly lower though, dropping 0.2 percentage points to 31.4%, above the historical average of 31% for the fourth time in the last five weeks.
The bull-bear spread (bullish minus bearish sentiment) decreased 2.4 percentage points to 9.3% and is above its historical average of 6.5% for the 31st time in 33 weeks.
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