Stocks Need a Santa Rally to Close 2018 in the Green
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What caused the market plunge and headlines at the start of the episode?
With your money briefing, I'm Charlie Turner in New York for The Wall Street Journal. Do the markets have a Santa Claus rally in them? They'll need it to avoid a loss for the year. We'll have more in a moment. First, these money headlines. We are watching the markets again on Tuesday following Monday's plunge of more than 2% for each of the major averages. The Russell 2000 index of small cap stocks also lost more than 2% and is in bear market territory, down at least 20% from its recent high. Gone are the days when Amazon's Jeff Bezos could proclaim the company was not concerned with turning a profit. With the online retail giant's growth slowing, investors are looking more closely at the bottom line.
The Wall Street Journal's Overheard says that Amazon managers are now working to pare down money-losing items, cutting what the company calls... Well, it's an acronym for can't realize a profit. These include things such as bottled beverages and snack foods that are uneconomical to ship. Health care stocks have been the strongest performer in the S&P 500 this year thanks to the Affordable Care Act. The sector has sold off sharply the past two days in the wake of a federal judge's ruling last week that the law known as Obamacare is unconstitutional. Shares of hospital operator Tenant Health Care and Medicaid-focused insurer Molina Health Care have both been dinged. According to the Wall Street Journal's Heard on the Street, the investing risks the ruling introduces are hypothetical but potentially severe.
The law is still in place for now, so the ruling won't directly impact the sector's business operations. And it could be years before all appeals are heard. But the financial threat is real if the ruling sticks. Still ahead, a Santa Claus rally or a lump of coal?
We're into the last two weeks of trading for 2018, and U.S. stocks will need a Santa Claus rally to avoid their first annual decline since 2015. History has been on the side of the bulls as far as end-of-year rallies are concerned, but it's been a rough year and the major averages will have to finish strong to avoid finishing in the red. Jessica Menton is markets reporter for The Wall Street Journal, and she joins us in our studio. First, Jessica, the S&P 500 has had a pretty good track record when it comes to year-end finishes, hasn't it?
Absolutely, it has. And it's been quite a wild final quarter of the year, especially just in December. All the major averages are off to their worst December since 1980, to put that into some perspective. So stocks really need some sort of santa claus rally to avoid their first annual decline since 2015 and when people talk about the santa claus rally a lot of times people think oh it's during the holidays it's the month of december it's actually specifically a span of seven trading days so that's the last five trading days of this year and the first two in the new year so it's more condensed than people sometimes think
And I think over the past 50 years or so, the S&P has finished strong during this period, the Santa Claus rally.
Absolutely. So it's a very historical tendencies for these, especially for the S&P 500. It does tend to perform very well over that seven-day trading span. But there are a little... a little bit of a different year and i've talked to a lot of different portfolio managers some analysts and economists just asking them will this year not follow that script compared to other years and there's just a lot of different things hanging over the markets right now there's different trade tensions we have slumping commodity prices and we're also in a higher rate environment which really sets the stage for the federal reserve on wednesday following their meeting because a lot of investors really want a clearer picture on their rate outlook going forward
in 2019 and the years after.
If the Fed, let's say, at the end of its two-day meeting delivers a dovish interest rate forecast for next year, could that set off a Santa Claus rally?
It's possible. And the reason I say that is because with the different trade tensions that have been going on, if you look at the S&P 500 and the multinationals that have exposure overseas, which tends to be a lot of tech companies, when the dollar is higher, that weighs on their revenues overseas.
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