Wall Street Brunch: Will Santa Deliver? (undefined:SP500)

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The holiday-shortened week will market the start of seasonal stock gains. (0:18) Costs soaring on ChatGPT improvement project. (4:06) How much did the “12 Days of Christmas” cost in ’24? (5:14)

Investors will enjoy a holiday-shortened trading week. The stock and bond markets are shut on Wednesday for Christmas Day and both will also close early on Tuesday for Christmas Eve.

But while there are no major earnings, there’s still the Santa Claus Rally to watch out for.

First defined by the legendary Stock Traders Almanac in 1972, the Santa rally refers to the tendency for stocks to gain during the last five trading days of December and the first two trading days of January. So, it should start on Tuesday.

Going back to 1969 the benchmark S&P 500 (SP500) has been up nearly eight out of 10 times during this period, rising an average of 1.3%.

So, is it all aboard the sleigh? Traders may be reticent after last week’s Fed dots deflated what was looking to be a strong final month to a strong year.

David Laut, CIO of Abound Financial, said earlier in the month that the “Santa Claus rally that we typically see at the very end of the year, likely came early this year, as there are very few near-term catalysts to push stocks higher.”

Looking at where the indexes stand, if anything could use some holiday cheer it’s the Dow (DJI). It’s been hammered, down -4.6% in December and trailing the broad market for the year, up nearly 14%. The S&P is down -1.7% for the month following the Fed selloff, so there’s room to run. But it’s already notched a 24% gain for 2024. The Nasdaq (COMP.IND) is still in the green for December, up +1.9% and more than 30% for the year.

There are other factors at play this time of year as well. Wolfe Research notes that there is a bounce trade of the worst performing stocks as tax-loss selling wraps up.

The worst-performing stocks historically outperform by an average of about 250 basis points during the last two weeks of December through the end of January.

On the economic calendar, the Conference Board’s measure of December consumer confidence arrives on Monday, just in time for last-minute shopping. The index is expected to rise to 113.5 from 111.7 in November. The index is more like to reflect political opinions than spending habits, though.

On Tuesday, even with the shortened trading day, November durable goods orders arrive before bell. The headline number is forecast to fall -0.3%, with the core figure, ex transportation, seen rising +0.3%.

Last Friday, November’s spending and income numbers arrived and Pantheon Macro economist Samuel Tombs noted that the 0.3% monthly rise in real consumer spending “leaves it on track to grow at an annualized rate of 2.5-to-3% in Q4, down from Q3’s breakneck 3.7% pace but still remarkably strong.”

“That said, most of the overall increase in November was due to a 1.8% leap in spending on durable goods. Part of this reflects very strong spending on autos, which rose by 2.3% on the month, as vehicles damaged by Hurricanes Helene and Milton were replaced. But part of it probably reflects consumers starting to bring forward spending on many types of goods that will potentially be subject to new tariffs by the incoming Trump administration.”

“If so, that likely will continue to support goods consumption in the very near term. But it will result in payback later after the tariff threat either recedes or comes to pass,” he said.

Along with that report came the PCE price index (the Fed’s favored inflation gauge), which showed headline inflation rising less than expected to 2.4% with core PCE staying at 2.8%. But what about Xmas inflation? More on that later.

In the news this weekend, the Senate on Saturday voted to pass a spending bill that will fund the government through mid-March and avoid a shutdown. President Joe Biden then signed the legislation into law.

The Senate vote wrapped up what has been a chaotic funding process involving multiple rejections and a looming shutdown threat. The latest plan provides for spending through March 14, extends the farm bill, offers additional aid to farmers and provides disaster relief to hurricane victims.

The Senate passed the bill with a vote of 85-11 early Saturday morning. It had first cleared the U.S. House on Friday evening 366-34.

And OpenAI’s project, intended to be a major advancement to the artificial intelligence that drives ChatGPT, is behind schedule and expenses are soaring.

The Wall Street Journal says the project that has been in the works for more than a year and a half, officially named GPT-5 and code-named Orion, may not work.

Microsoft (MSFT), OpenAI’s largest investor and closest partner, had expected to see a new model around the middle of this year.

OpenAI had held two large training runs, at least. Each has included months of adding huge amounts of data, aimed at making Orion smarter. New issues reportedly arose and the software didn’t meet researcher’s goals.

Orion, at best, works better than OpenAI’s current products. But it hasn’t progressed to the point to justify the huge expense of running the new model.

For income investors, on Monday, Broadcom (AVGO) goes ex-dividend with a payout date on December 31.

Dividend darlings Philip Morris (PM) and Altria (MO), along with Southwest Airlines (LUV) go ex-dividend on Thursday. Altria pays out on January 10, Philip Morris pays out on January 13 and Southwest pays out on January 16.

On Friday, American Tower (AMT) goes ex-dividend, with a payout date of February 3.

And in the Wall Street Research Corner, we look at Xmas inflation as promised.

For the last 41 years, PNC has been calculating the “true cost of Christmas” based on the prices of the gifts in the song “The 12 Days of Christmas.”

This year, the Christmas Price Index rose 5.4% from a year ago.

Amanda Agati, CIO of PNC’s Asset Management Group, said: “Believe it or not, we’re still seeing the cause and effect of the pandemic-inflation hangover, even nearly five years later. With years of steep price increases, we’d think inflation has nowhere to go, but we’d be wrong. This latest PNC CPI is an accurate reflection of what we’re seeing in the market.”

In dollars, buying all 364 gifts in the song, rose to $209,272. It topped $200,000 for the first time last year.

The biggest inflationary rise was the price of the Partridge in a Pear Tree, which jumped 16%. Six Geese-A-Laying rose 15.4% and Eleven Pipers Piping (as measured by the Philadelphia area musicians union) rose 15.8%.

Two Turtle Doves, Four Calling Birds, Five Gold Rings, Seven Swans-A-Swimming and Eight Maids-A-Milking were all flat.

The core Christmas index, excluding volatile swans, rose 7.5%.