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Is the U.S. Stock Market Ready for a Christmas Rally?

Published 11/30/2022, 07:27 AM
Updated 03/27/2024, 08:10 AM
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EU and US futures consolidate the monthly performance slightly below the recent highs.

With not-so-different tones and arguments yesterday, some members of the board of the Federal Reserve reiterated that the rate hike is going ahead.

The vice president of the central bank, John Williams, said that a pivot in the current monetary policy would only be feasible in the event of a clear drop in inflation, probably in 2024. This is a plausible hypothesis.

The launch of new support measures in China also contributes to the serene climate on the stock exchanges. Other measures regarding the management of the pandemic could be announced shortly.

Nasdaq 100 Futures, S&P 500 Futures, DAX, FTSE MIB, Ibex 35: The rebound of the indices seems to have stopped. It is a physiological break due to recent record increases. In my opinion, the stock markets have risen too quickly.

I expect a restart soon. The COVID situation in China and any worsening of the Russia-Ukraine conflict could lead to a correction in the short term.

In any case, in the long term, I am optimistic: the greater-than-expected drop in inflation in Europe and the US will soon give a new boost to the markets, thanks to the easing of the restrictive policies of the central banks.

Natural gasNatural gas regained $7. The rebound is due to the intense cold in the US, which has brought heating demand to high levels. In the long term, the situation is interesting.

Europe will need even more LNG to replace Russian volumes next summer as the continent reloads storage and Chinese demand recovers from lockdowns and offsets lower imports from other Asian buyers.

A general agreement seems to have been reached, ensuring greater liquid gas imports from the US and some allied countries at a discounted price. That is not good news for prices. Furthermore, the seasonality of these months is not favorable.

In addition,  the reopening of various export plants that have been offline for some time is creating an excess in domestic supply, which is also negative for prices. I will not buy gas at these prices for the reasons mentioned.

I will evaluate a long entry only in the $ 4.50 area, which I expect will be tested in December.

Crude oilBad news for oil. In China, the 2nd largest oil consumer, COVID seems to have regained strength. OPEC has also cut demand due to inflationary pressures, which in much of the world risk bringing many economies into recession.

A mix of news caused prices to plummet last week. However, I remain positive over the long term with a $90 target.

OPEC is ready to intervene with a production cut to support prices even if negative developments should occur in China.

Furthermore, a possible price cap for Russian oil below $50, which would be very penalizing for Russia, could give a new boost to prices if applied in conjunction with a pick-up in Chinese and Indian demand for American oil.

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