US Stocks Set To Gain For 7th Session On Small-Caps Strength, But Traders Wary Of Volatility From 'Quadruple Witching'

Stocks are poised for a seventh consecutive session of gains on Friday, driven by the traditional year-end Santa Claus rally. As the market eyes potential robust gains in the remaining nine sessions of the year, the upcoming quadruple witching session introduces an element of volatility, given the simultaneous expiration of index futures, index options, stock options, and single stock futures.

Traders will closely monitor economic data on manufacturing activity and industrial production to validate the Federal Reserve’s signaled soft-landing after its December meeting.

Cues From Thursday's Session:

Traders exhibited optimism about the economy avoiding a hard landing. The major averages opened higher, fueled by stronger-than-expected retail sales growth reported by the Commerce Department. Weekly jobless claims were roughly in line with expectations. Although the averages dipped below the flat line in the late afternoon, they recovered and closed moderately higher.

Energy stocks led the advance, and interest rate-sensitive sectors, including real estate, financials, industrials, and consumer discretionary stocks, also posted gains. Conversely, defensive utility stocks experienced a notable retreat. 

US Index Performance On Thursday

Analyst Color:

Looking ahead into 2024, the S&P 500 Index will likely end the year between 4,700 and 4,800, says Commonwealth Financial Network, a Waltham, Massachusetts-based financial advisor. S&P 500 earnings will likely grow in the mid-single-digit range in the new year, the firm said.

“Based on valuations, the more attractive asset classes are those that have underperformed over the last few years: value, small-cap, and international,” the firm said. It, however, cautioned of clouds on the fundamental horizon for these stocks.

“So, while large-cap growth is more expensive compared with other asset classes and historical valuations, we believe it has a more solid foundation, especially when you factor in the outlook for artificial intelligence, which is revolutionizing the technology sector,” it added.

Fund Strat’s Tom Lee, while appearing on CNBC’s Last Call on Thursday, said small-cap stocks could outperform in 2024 as the Fed begins cutting rates. He predicted that the new year could see the Russell 2000 hitting 3,000 from the its current level.

Futures Today

Futures Performance On Friday

In premarket trading on Friday, the SPDR S&P 500 ETF Trust SPY rose 0.24% to $471.22 and the Invesco QQQ ETF QQQ gained 0.33% to $404.73, according to Benzinga Pro data.

Upcoming Economic Data:

Traders will get their first glimpse into the state of the manufacturing sector in December, with the results of the New York Federal Reserve’s regional manufacturing survey. The business conditions index based on the survey is expected to come in at 2 for December, down from 10.1 in November. A reading above “0” suggests expanding activity. The data is due out at 8:30 a.m. ET.

The Federal Reserve will release its industrial output report for November at 9:15 a.m. ET. Economists, on average, expect, industrial production growth of 0.3% month-over-month, reversing the 0.6% drop in October. The rebound will likely be helped by a recovery in manufacturing output, which is expected to increase by 0.4% following October’s 0.7% drop.

S&P Global’s flash private sector activity data is scheduled to be out at 9:45 a.m. ET. The manufacturing purchasing managers’ index is likely to have edged down from 49.4 in November to 49.3 in December, suggesting continued contraction. The services PMI is expected at 50.6, down from November’s 50.8.

See also: Best Futures Trading Software

Stocks In Focus:

• Costco Wholesale Corporation COST rose over 1.30% in premarket trading following the release of its quarterly results. The company also announced a $15 per share cash dividend.
• Lennar Corp. LEN declined more than 3% despite reporting better-than-expected quarterly earnings.
• Scholastic Corporation SCHL plunged nearly 13% following its disappointing quarterly results.
• Chinese stocks, led by Alibaba Group Holding Ltd. BABA and JD.com, Inc. JD rallied on stimulus hope set in motion by mixed Chinese economic data.
• Darden Restaurants, Inc. DRI is scheduled to report its quarterly results before the market open.

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures rose 0.46% to $71.91 in early European session on Friday, tacking onto its 3%+ rally on Thursday. Oil’s rally came on the back on strong economic data that triggered concerns regarding a potential demand-supply imbalance.

The benchmark 10-year Treasury note fell 0.012 percentage points to 3.917% on Thursday.

Most major Asian markets advanced on Friday, with the exception of the Chinese, Singaporean and New Zealand markets. The optimism on Wall Street pervaded into the markets in the region, while China stumbled under the weight of mixed economic data.

European stocks traded higher by late-morning trading on Friday.’

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