Last Call for Window Dressers

By Michael Lebowitz and Lance Roberts | December 27, 2023

Some institutional investors must only report their holdings by the end of a month or quarter. As such, they often undertake window dressing trades around the end of these periods to give the appearance they held the “right” positions. Friday, December 29th, marks the last trading day of 2023. That means today is last call to place trades that will make the books at year-end. Window dressing trades can result in selling pressure on struggling stocks and buying pressure on the outperformers.

That being said, we expect light volume this week as the market enters a lull period between Christmas and New Year’s. Most institutional investors will be taking time off for the Holidays, and there is little economic data of consequence. As a result, most last-call orders are likely being placed with a bartender rather than a market maker, and we can expect a quiet rest of the week.

What To Watch Today


  • No notable earnings releases today.


Economic Calendar

Market Trading Update

As noted yesterday, the “Santa Claus Rally” officially began, which will last through the first two days of January. Yesterday’s market action held true to form, with the S&P and Nasdaq ratcheting nice gains in a fairly broad rally as portfolio window dressing ensues. With strong gains in December, the odds of a strong January are reduced somewhat, but the outlook for the next calendar year remains optimistic.

Return Table

However, that is for a later discussion. Today, the market remains in overbought territory, but “The Force of All-Time Highs Is Strong.” With light trading volume this week and with the end of the year upon us, the rush to catch up on returns will likely continue to push stocks higher through the end of the week. The risk of a significant correction remains low, but we will get a better opportunity to add to our exposures in January.

Market Trading UPdate

Buy Now, Pay Later is a Double-Edged Sword

“Buy now, pay later” (BNPL) is a trending avenue to finance purchases interest-free over a set period… Usually, four to eight bi-weekly payments. It gained popularity starting in January 2022 and is seeing a resurgence in interest throughout the 2023 Holiday season. Initially, BNPL was available mainly for online discretionary purchases. However, the BNPL company Affirm Holdings recently expanded its offering to the self-checkout lanes at most US Walmart stores. As inflation squeezes the pockets of many Americans, BNPL provides a solution for maintaining one’s lifestyle without current sacrifice. This is likely a factor behind continuing consumer strength despite dwindling savings and high inflation over the past few years.

It’s not all peaches and roses, however. Buy now, pay later may not charge interest, but it isn’t fundamentally different from a credit card in pulling forward consumption. Furthermore, BNPL patrons are likely biased toward those carrying a balance on credit cards and even those unable to qualify for credit at major institutions. This means a larger swath of Americans can pull forward future consumption than previously possible.

Affirm (AFRM) SVP, Revenue Pat Suh noted that company research indicated 54% of consumers want a buy now, pay later option at checkout, adding that 76% of consumers would either delay or not make a purchase without a pay later option.

Research has shown that pulling forward future consumption should put a damper on future economic growth. So, while BNPL may benefit our economy in the short term, it’s clearly a double-edged sword in the long run.

Buy Now, Pay Later Search Trends

SentimenTrader is Bullish Despite Overbought Conditions

Breadth signals may indicate an overbought market, but SentimenTrader is still bullish. The key reason is a buy signal from its SPY breadth indicator, which signals points at which 90% or more S&P 500 stocks are above their 50-dma using data since 1998. The data is convincing, with a positive central tendency return over all measured timeframes and win rates above 80% three, six, and nine months following the signal. The last call for a buy (before December 19th, 2023) was triggered on November 25th, 2022. Since then, the S&P 500 has been up over 20%, but remember that this buy signal occurred with the market oversold on a longer-term basis.

While the back-test results argue for a bullish bias to the market outlook, they are a study of history and don’t guarantee that’s how it will play out this time. We are proceeding with caution and would look for a temporary pullback before increasing exposure.

SentimenTrader is Bullish

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