Overnight Headlines

*S&P500 ends lower after four-day rally to record high

*Dollar subdued, trading around 96 on DXY in narrow range

*Brent crude remained close to a one-month high as demand worries ease

*Bitcoin fell more than 6% and slid below $50,000 back to the 200-day SMA

USD oscillated between positive and negative territory in a quiet session. The DXY is trading above 96 which is roughly the midway point of the 2020/2021 high/low move. EUR continues to trade in a narrow range around 1.13. GBP stalled near support at 1.3411. USD/JPY consolidated at its recent high, edging towards 115. NZD creeped lower below the August low at 0.6805.

US equities paused their bull run as investors locked in gains from the end-of-year Santa rally. The declines end a four-day run after whipsawing in choppy December trading. Tech stocks led the move lower with the Nasdaq down 0.6%. Apple eased 0.5% but remains within 2% of becoming the first-ever $3trn company by market cap. Asian markets are in the green with Australian stocks rising for a fifth straight session to their highest since September 8. US futures are marginally positive.

Market Thoughts – Final sprint into year-end

With US stocks enjoying a blockbuster twelve months, it’s inevitable that we see some profit taking to end the year. The Santa rally helps the S&P500 on average rise 1.3% in the last five trading days of the year, and first two of the new year, going back to 1969.

Investors are readying themselves for a new year with the Fed signalling three 0.25% interest rate hikes by the end of 2022 as the economy nears full employment and policymakers cope with the inflation surge. Of course, we note that volumes are over a third less than their average at this time of year.

Chart of the Day – Dow close to all-time high

With a quiet trading session yesterday, the Dow was the only major index to close higher. It has been up for five consecutive days but fell just short of the record closing level of 36,432. The S&P500 moved to an intraday high but closed 0.1% lower on the day.

Looking at the daily chart, the record intraday high is 36,565 so 167 points away from the recent close. The selloff in late November/early December was supported by the 200-day SMA. Prices also dipped below the lower Keltner band which has often seen a sharp retracement. The second downturn before Christmas was also capped by the same SMA at 34,665. It’s tough to argue with the long-term trend, with global economic growth likely to remain above trend for the first half of 2022 and policy still relatively accommodative.