Market rolls into New Year

The S&P 500 (SPX) may not have done much the final four days of the week, but last Monday’s 1.4% rally was about all it needed to wrap up its 34th up week of 2021—and one of its best years of the past five decades in the process:

The headline: Santa Claus Rally carries stocks into New Year.

The fine print: Except for Friday, the SPX set a new intraday or closing high every day of last week, and its 4.3% rally in the final eight trading days of the year was its biggest comparable gain since 2008, and the second-largest since 1992.¹

The number: 7, where the SPX’s 2021 gain ranked among the returns of the past 50 years.

The scorecard: The Dow Jones Industrial Average (DJIA) led the market last week, but the SPX came out on top for the year, besting the Nasdaq 100 (NDX)—by a hair—for the first time since 2016:

Sector roundup: The strongest S&P 500 sectors last week were real estate (+3.7%), utilities (+2.6%), and materials (+2.6%). The weakest sectors were communication services (-0.8%), consumer discretionary (+0.4%), and information technology (+0.5%).

Highlight reel: CollPlant Biotechnologies (CLGN) +35% to $17.89, Cue Health (HLTH) +22% to $15.66, BridgeBio Pharma (BBIO) -72% to $11.38, SK Telecom (SKM) -40% to $28.94—all last Monday.

Futures action: Oil closed out its biggest up year since 2016 by mirroring the stock market—February WTI crude oil (CLG2) jumped to a one-month high of $76.09/barrel last Monday, then traded sideways to end the week at $75.21. February gold (GCG2) extended a modest rally off its mid-December lows by closing Friday at a six-week high of $1,828.60/ounce.

Friday’s jobs report caps a busy first week of the year that also includes the release of the minutes from the latest Fed meeting:

●Today: Markit Manufacturing PMI, Construction Spending
●Tuesday: ISM Manufacturing Index, Job Openings and Labor Turnover Survey (JOLTS)
●Wednesday: Markit Services PMI, FOMC minutes
●Thursday: Challenger Job Cuts, Trade balance, ISM Non-Manufacturing Index, Factory Orders, Vehicle Sales
●Friday: Employment Report, Consumer Credit

This week’s earnings include:

●Tuesday: SMART Global Holdings (SGH)
●Wednesday: Simply Good Foods (SMPL), RPM International (RPM)
●Thursday: Walgreens (WBA), Conagra Brands (CAG), Bed Bath & Beyond (BBBY), Constellation Brands (STZ), WD-40 (WDFC)
●Friday: Acuity Brands (AYI)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

In general, expecting markets to pause or pull back after large up moves—and do the opposite after big sell-offs—has a solid basis in fact. But the US stock market’s performance after its biggest up and down years isn’t an open-and-shut case.

The SPX’s median return for the years following its 10-biggest up years since 1972 (not counting this year) is 15.4%, while its median gain after its 10-biggest down years is 19.1%.² That’s not a huge difference, but it still supports the idea that strength tends to follow weakness, and vice versa. On the other hand, of the 10-strongest years, only one (1989) was followed by a down year, while three of the 10-weakest years (1973, 2000, and 2001) were followed by down years.

The takeaway may be that price trends don’t fit neatly into a calendar—that is, market turning points don’t necessarily track the transition from one year to another.

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¹ Reflects S&P 500 (SPX) daily closing prices, 1960–2021. The period specified spans the third trading day before the Christmas holiday to the fifth trading day after it. Supporting document available upon request.
² Reflects S&P 500 (SPX) monthly closing prices, 1972–2021. Supporting document available upon request.