US stock futures traded in a tight range early Thursday, as most Asian shares extended gains amidst hopes of a year-end rally. Meanwhile, Treasuries softened with demand for safe-haven assets declining.
The MSCI Asia Pacific Index climbed for a fourth consecutive day, marking its longest winning streak since September, with standout performances from Japan and Taiwan. Japanese equities surged as Bank of Japan Governor Kazuo Ueda refrained from signaling a near-term interest rate hike, providing relief to investors.
Read more: US Stocks Surge Ahead of Christmas: S&P 500 and Nasdaq Lead the Rally
Santa Claus Rally in Focus: A Seasonal Boost for Markets
Equity bulls are banking on the “Santa Claus Rally”, a historic pattern where stocks rise during the final five trading days of the year and the first two of the next. This year’s rally began Tuesday, sparking optimism for a continued upward trend.
“A follow-through from pre-Christmas momentum will likely keep Asian markets on a positive trajectory,” said Jun Rong Yeap, market strategist at IG Asia Pte. “The yen’s recent weakness, driven by divergent policies between the Federal Reserve and the Bank of Japan, has further buoyed Japanese equities. Coupled with the year-end seasonality, the setup for gains looks strong.”
Asian Market Highlights
- Japan’s Retail Sector Shines:
Japanese retail stocks surged after agreements between Japan and China to boost tourism. Notable gainers included:- J. Front Retailing Co., which jumped 9% following strong earnings.
- Isetan Mitsukoshi Holdings Ltd. and Takashimaya Co. also posted gains.
- Automotive Boost:
Toyota Motor Corp., a major player in the MSCI Asia Pacific Index, advanced after reports that the automaker plans to double its return-on-equity target, adding to the day’s momentum. - Chinese Tech Stocks Soar:
Shares of Chinese computing-equipment makers rallied after Beijing announced plans to include the sector in local government special bonds.- Kingsignal Technology Co. and Broadex Technologies Co. surged by 20%.
US Market Outlook: Riding the Santa Claus Rally
In the US, the S&P 500 advanced 1.1% on Tuesday, extending its yearly gains to an impressive 27%. The Nasdaq 100 rose 1.4%, while the Dow Jones Industrial Average gained 0.9%.
Historically, the Santa Claus Rally has been a strong period for equities. Since 1950, the S&P 500 has delivered an average return of 1.3% during this window, significantly outpacing the average seven-day market return of 0.3%, according to Adam Turnquist of LPL Financial.
“When Santa delivers positive returns during this period, the S&P 500 historically sees an average January return of 1.4% and an annual return of 10.4%,” Turnquist noted.
Big Tech Leads the Charge
Market leadership continues to rest with big-cap tech stocks, which remain heavily favored by institutional investors. “These tech names are the primary drivers,” said Matt Maley of Miller Tabak. “Any buying over the next week will likely focus on these stocks, reinforcing their position as key portfolio staples.”
Treasuries and Commodities Update
- Treasuries:
The 10-year Treasury yield climbed two basis points to 4.61% ahead of a $44 billion auction of seven-year notes in the US. - Commodities:
Oil prices held steady following Tuesday’s gains, with China’s stimulus measures and US stockpile forecasts drawing attention.
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Looking Ahead: Can the Rally Hold?
With the Santa Claus Rally in full swing, optimism is running high. Asian markets are benefitting from policy shifts and seasonal trends, while US investors keep an eye on big tech and broader market performance. As 2023 comes to a close, equity markets may finish the year on a high note, setting the stage for a positive start to 2024.
Keep an eye on updates to gauge how this rally will unfold as markets respond to evolving macroeconomic trends.
