Santa Claus Rally is Back

The Dow and S&P 500 gapped up this morning on improved consumer confidence and a couple of strong earnings reports. Commodities—oil, natural gas, copper, iron ore—are trading higher as well. The bond market is mixed in today’s session. Short-term Treasuries are catching a slight bid, while long-term notes are down in price. Said differently, short-term bond yields are falling while long-term yields are rising. That’s good because it means the yield curve is less inverted. It also suggests that bond traders are gaining comfort that perhaps the Fed won’t hike interest rates to the moon, and we might just escape an economic recession.

Both FedEx (FDX) and Nike (NKE) reported better than expected quarterly results this morning. Nike posted 17% y/y revenue growth and said profit margins shrunk less than anticipated. North American sales surged 30%. China sales fell 3% but it looks like the worst of the authoritarian regime’s Covid lockdowns are now behind us. Th stock is up over 3% today. FedEx, after kitchen-sinking the last quarter with terrible guidance, reported OK results. Sales fell 3% from year-ago levels, but profits were better than feared due to cost-cutting and price hikes. I realize that doesn’t sound really positive, but with the stock down nearly 50% from its peak, the bar is low for a rally. FDX is up almost 5% in today’s session.

The Conference Board’s monthly survey of consumer confidence surged unexpectedly to levels not seen since April. Attitudes about both current and future conditions improved meaningfully. The catalyst seems to have been falling inflation. In addition, more respondents said jobs are plentiful and fewer said jobs are hard to get. Traders were taken off guard by the degree of improvement, but Bloomberg News says the overall level of confidence is still very low, “around levels associated with recession.”

Existing home sales—the volume of transactions excluding new homes—fell 7.7% last month to an annualized rate of 4.09 million. That’s the lowest since May 2020 when large parts of the economy were shut down. Sales have been falling steeply for a year now, driven by rising mortgage rates and high home prices. Single-family home sales are all the way back to early 2011 levels. Although housing, like the economy, is cyclical, the Nat’l Association of Realtors says this is the steepest one-year decline on record. It’s hard to escape the conclusion that housing is experiencing its own recession.