Market Wrap: Stocks Rebound as Broad-Based Gains Ease Recent Declines

The stock market closed the week on a high note, with a robust rally driven by buy-the-dip interest following a string of declines. The S&P 500 rose 1.3 percent on the day, although it remains 0.5 percent lower since the start of the Santa Claus rally period, defined as the last five trading sessions of the year and the first two of the new year. Despite the day’s gains, the index closed just below its 50-day moving average at 5944.

Consumer discretionary stocks led the advance, with Tesla and Amazon.com propelling the sector to a standout 2.4 percent gain. Tesla surged 8.2 percent after a recent 20 percent pullback from its December highs, while Amazon climbed 1.8 percent. These performances helped lift the Vanguard Mega Cap Growth ETF by 1.7 percent, underscoring the strength in mega cap stocks.

Notably, Apple bucked the broader trend, dipping 0.2 percent amid concerns over iPhone demand and the company’s rare decision to offer discounts in China. Similarly, US Steel faced sharp declines, falling 5.6 percent after President Biden confirmed the administration’s decision to block Nippon Steel’s proposed acquisition, sparking criticism from both companies.

Market breadth was firmly positive, with advancing stocks outnumbering decliners by a 3-to-1 margin on both the NYSE and Nasdaq. All 11 S&P 500 sectors closed higher, reinforcing the broad-based nature of the rally. The energy sector also posted gains, supported by a 0.84 percent rise in crude oil prices to $73.95 per barrel.

Economic Data Offers Mixed Signals

The December ISM Manufacturing Index came in at 49.3 percent, slightly above expectations but still signaling contraction in the manufacturing sector for the ninth consecutive month.

Although the pace of contraction slowed, the uptick in the prices index suggests lingering inflationary pressures within the sector. Meanwhile, natural gas inventories fell by 116 billion cubic feet, a steeper decline than the previous week.

Treasury yields edged higher, with the 10-year note yield rising to 4.60 percent and the 2-year note yield increasing to 4.28 percent. The modest uptick in yields reflects continued market adjustments following mixed economic data.

International Markets and Commodities

Global markets presented a mixed picture. In Europe, major indices like the DAX and CAC recorded losses, reflecting cautious sentiment amid ongoing macroeconomic uncertainties. Asian markets were also uneven, with the Hang Seng gaining 0.7 percent while the Shanghai Composite dropped 1.6 percent.

Commodities experienced varied movements. Crude oil climbed as traders balanced global demand prospects with supply dynamics, while natural gas dipped below $3 per MMBtu. Gold declined to $2655.10 per ounce, offsetting gains in silver and copper.

Looking Ahead

Investors will turn their attention to next week’s economic calendar, which includes the December S&P Global US Services PMI and November Factory Orders on Monday. These reports will provide further clarity on the health of the service sector and broader economic trends as markets attempt to build on today’s momentum.

Key Takeaways

The day’s rally offered some relief after a challenging start to the Santa Claus rally period. Strong performances from consumer discretionary and mega cap stocks drove gains, but persistent sector-specific challenges, such as Apple’s China-related issues and manufacturing sector contractions, continue to weigh on the broader outlook.

Next week’s data and corporate developments will be pivotal in shaping market sentiment as investors look to gauge the sustainability of this recovery.