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Not a creature was stirring.
Less than a week from Christmas and investors appear unwilling to push stocks too far one way or another. All three major indexes managed fresh records on Tuesday, but by slim margins, with the S&P 500 SPX, +0.03% finishing 0.03% higher.
And that is as some investment banks forecast enthusiastic buying to come in early 2020. That is commonly referred to on Wall Street as a melt-up—a sudden asset rally characterized by investors piling in amid fear of missing out on gains.
Our call of the day, from strategists at Citigroup, warns all that enthusiasm could go too far if investors aren’t careful.
Signs of growing global economic stabilization in the short term, alongside positive developments on the trade war, may have caught some big money managers off guard, said Jeremy Hale, Citigroup’s head of asset allocation, in a team note looking ahead to 2020.
In short, those who weren’t overly exposed to stocks and missed out on the S&P’s 27%-plus gain this year may be forced to play catch up and pile into equities in early 2020. That would help create a “melt-up dynamic,” said Hale.
“As such, equities have the potential to overshoot expectations inferred by fundamentals for the initial quarters of the year as the economy stabilizes. We will continue to track flows, positioning and signs of over-exuberance closely in the coming months,” he said.
Looking past that, Hale said when the economy begins to lose steam in the second half of this year, as they expect, “volatility will once again pick up and risk assets will be depending on further juicing from lower discount rates,” i.e. accommodative central bank policies.
Former Federal Reserve Chairman Alan Greenspan famously sent global equity markets into a tailspin in 1996 with his warning of “irrational exuberance”—that stocks had gotten too hot. He recently commented how he’s nervous all over again.
The market
Dow DJIA, +0.11%, S&P SPX, +0.03% and Nasdaq COMP, +0.10% futures are crawling higher, alongside European stocks SXXP, +0.09%, while Asian markets ADOW, +0.13% had a mixed day. The pound GBPUSD, -0.3198% is still falling on “hard-Brexit” fears of no deal with the European Union.
The buzz
FedEx FDX, -0.53% shares are sliding after big disappointment on the global shipper’s earnings and outlook.
Peugeot maker PSA Group UG, +1.36% and rival Fiat Chrysler FCAU, +1.52% agreed to a 50/50 merger, which would create the world’s fourth-biggest car maker.
The Justice Department has accused health care group CVS CVS, -1.41% and its Omnicare unit of prescription drug fraud. Omnicare said it was confident its practices would be found to be consistent with industry and state requirements.
Tesla TSLA, -0.66% may cut its China-built Model 3 sedan car prices by 20% next year to attract more buyers, Bloomberg has reported. The company’s China representative declined to comment.
The stat
Tuesday’s record close makes it 30 for the S&P 500 this year. But as blogger The Market Ear points out, that is less impressive compared with 62 record closes in 2017, the second-highest in history behind 77 in 1995.
The chart
A record number of investors expect President Donald Trump to get re-elected next November, according to this chart from Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.
“In our December 2019 survey, more than three-quarters said that they expect Trump to get re-elected in 2020, an increase from 66% in our September 2019 poll,” she notes.
The tweet
That was President Trump commenting hours ahead of a historical vote on impeachment. Tens of thousands marched in pro-impeachment rallies across the country on Tuesday.
Random reads
U.K. company develops tilted toilet to keep workers from sitting too long
Scientists find DNA on 5,700-year-old piece of gum
As wildfires rage, Australia endures its hottest day on record
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