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Santa Claus Rally?

December 11, 2023

Analyzing the current performance of the entire U.S. economy is clearly a subjective endeavor. There are some obviously very good things going on in some manufacturing and tech industry spaces. On the other side of the coin some industries -such as residential home mortgages – are really struggling. One thing that is not subjective is the price change of the S&P 500 and that just made a new high for 2023 and may break out to the upside for that proverbial “Santa Claus Rally.” 

We mentioned a few weeks ago that the ingredients were in the pot for the market to continue higher – so today we will show you some of the fundamentals that could potentially throw a wrench in Santa’s seasonal gift giving…

Transportation companies are clearly the life blood of the economy moving products from producers to consumers. Right now, transportation companies are not reporting the best of times. In fact, earlier this year, things were pretty grim as bankruptcies and layoffs piled up. The number of authorized interstate trucking fleets in the U.S. declined by nearly 9,000 in the first quarter of 2023, according to federal data analyzed by Motive, a fleet management technology company. Several midsized fleets have already shuttered this year, including Florida’s Flagship Transport and North Carolina’s FreightWorks Transport. Major freight brokerages have laid off thousands of employees in 2023. Although the Dow Jones transportation Average has had quite a nice bounce off of its October lows, it is still about 9% off of its high point from earlier this year. Historically, market pundits have been nervous of a stock rally in which the transportation stocks weren’t participating. The trannies have a lot of work to do to catch up to the rest of the market.

As important as the transportation sector is, of course we must be worried when we see the challenges that the banking system is having. Of course, The Fed had to bail the whole system out in the first quarter of this year when Silicon Valley Bank went belly up. Since then, the Fed has allowed banks to borrow against some of the bonds that they have which have sold off drastically in price. We will see if this is enough to keep things liquid – but at the same time deposits (checking and savings accounts) have fled banks for greener pastures (money market funds) so banks are starving for deposits. Wells Fargo bank just shut down 13 locations in one week and Citigroup is announcing widespread layoffs as part of a “restructuring.”  Of course, we don’t know if that just the current low-light reel of the banking sector or if that is a systemic issue. The largest financial ETF – XLF – has aggressively bounced off of its October lows. It has yet to make a new high for the year but may be set to do so along with the S&P 500 if some of the above listed negativity stays in the rear-view mirror.

For our friendly chart of the week, we will show you what concerns us for the long-term. This is a macro-economic indicator and clearly has nothing to do with whether or not a fat guy in a red suit is going to be flying around in a sled this year handing out gifts. This is the big picture item that has us up at night hoping things don’t turn nasty in the monetary system. This is the U.S. government’s budget deficit as a percentage of GDP for the last 20 years…



This represents how much more our government spends vs how much it takes in every year as a percentage of our total economy. To call this absurd is an understatement. You can see that the budget deficit during Covid was nearly 15% of our GDP. Today it is still north of 5%. An entertaining sidenote comes to us from the European Union. At the onset of that that “organization” it was mandated that EU countries could have a maximum budget deficit of 3% of their GDP. The U.S. isn’t involved in that agreement, but it is a comical reference point as you can see that there was very little time in THE LAST 20 YEARS that the U.S. wasn’t north of 3% of GDP with our budget deficit. Consequently, the national debt of America has TRIPLED in the last 15 years to a mind-boggling $34 trillion. Of course, the rocketing higher of interest rates that the U.S. government is paying on that debt exacerbates the situation and the math has become flat-out intimidating. Will the Fed have the flexibility to keep interest rates this high for very long considering this interest situation? Interest on the national debt will be well north of $1 trillion for 2024. We are nervous about that in the long run, but are guessing that reindeer hooves will be heard on our rooftops in the next couple weeks.


Regards and good investing,


Greyson Geiler