Commentary: Paul Ebeling on Wall Street, the Santa Claus Rally is On

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The Bulls Christmas Market is a happy one” — Paul Ebeling

Now: The Bulls are in celebration mode this Monday morning with the major US stock indexes trading at: DJIA +199.60 at 30399.41, NAS Comp +76.91 at 12881.65, S&P 500+24.33 at 3727.39. That is what Bull markets do when Santa Claus leads the charge.

Last Week’s Action

Economic data came in stronger, the NAS Comp and RUTX moved to new highs.

Congress found grounds that make pork more important than aid/relief/stimulus for Americans.

The final GDP for Q-3 was wildly high a 33.4%, but Q-4 will not be that good I believe though holiday retail sales are much better that expected.

The Technicals

The NAS Comp moved to a new high and closed on the highs, as it continued moving higher from the Monday gap to open at the 10-Day EMA. The big names need to join in.

S&P 500 and the DJIA: both faded off of the gap higher during the prior Thursday. Then, there was last Monday gap lower. But they closed the week stronger.

This week too is a shortened Holiday week, most participants are on vacation, nevertheless spirits are running high up and down Wall Street and the ski slopes.

Recapping Y 2020, a year of medical emergency chaos that the markets ignored after 24 March, as follows:

In Y 2020 when it came to financial markets the Biggest Q was Why in the midst of a global epidemic that might have killed 1.7-M people worldwide and pushed the economy into an instant recession in late February, did equity markets stage a historic rebound odd of the 24 March lows to mark new highs and become disconnected from fear mongering.  The risk was on and continues from stocks, junk bonds to Bitcoin; they all had very strong rallies.

Lots of people have an explanation for how the financial markets performed and continue to perform

They range from markets are “forward-looking” and investors are anticipating a roaring economy once COVID-19 is over, to just buy the dip.

The market is always about what will happen not what happened, and it has been highly profitable during The Trump Era to buy whenever the market pulls back.

We have seen a 66% rise in the MSCI All-Country World Index of stocks from its low on 24 March, the record-low yields in junk bonds, the more than 6X increase in the price of Bitcoin or any of the market moves.

The answer is very simple and comes down to this number: $14-T.

Yes, that is the amount by which the aggregate money supply has increased this year in the US, China, EU, Japan and 8 other developed economies.

To put that in perspective, the rise to $94.8-T exceeds all other years in data going back to Y 2003 and is far away and above the prior record increase of $8.38-T in Y 2017 according to data I compiled. And I do not see it slowing.

Knowing what was behind the performance of markets is only part of the story; it’s also important to understand the mechanics.

The place to start is with the central banks, which were instrumental in printing the money they needed to inject directly into the financial markets by purchasing bonds and other assets on a scale never seen before.

As of 30 November the collective balance sheet assets of the Fed, the ECB, the BoJ and the BoE stood at 54.3% of their countries’ total GDP, that up from 36% at the end of Y 2019 and about 10% in Y 2008.

The Trump Fed alone is pumping at least $120-B a month into the financial markets through its purchases of fixed-income assets.

Have a healthy week, Keep the Faith!

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