Consumer Spending Should Lift AXP

Be ready for a Santa Claus rally

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I am recommending a bullsih trade on the American Express Company (NYSE:AXP), the credit card and travel services provider. AXP should benefit from any rally due to consumer spending, and we did see the market turn around this week.

We saw a snap-back rally on Monday that then morphed into a “Powell rally” on Wednesday that took the S&P 500 back above the 2,700 level.

Federal Reserve Chairman Jerome Powell spoke at The Economic Club of New York on Wednesday and said the following: “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.”

The key phrase in that sentence is “[Interest rates] remain just below…the level that would be neutral for the economy.” Wall Street took that to mean that the Fed may not need to be as aggressive with the pace of interest rate hikes in 2019, and that sent the market sharply higher.

You can never really tell what the Fed is going to do next, so I remain skeptical that the central bank’s monetary policy will be as dovish as Powell implied. Even if the Fed did stop hiking rates, it would likely continue to offload its massive balance sheet next year, so we still need to be wary of this quantitative tightening situation.

Nonetheless, the bullish behavior we are seeing now is typical for this time of year. As I’ve mentioned before, the market almost always rallies into the end of the year, especially during a mid-term election year. And while I’m still a bit cautious, it looks like a “Santa Claus” rally — when stocks rally during the last week of December — could be in the cards.

Daily Chart of American Express Company (AXP) — Chart Source: TradingView

Consumer confidence and spending are up, and Cyber Monday sales are expected to set new records. I think a bullish trade on a company like AXP is the best way to proceed as we close out the year.

Buy to open the American Express Company (AXP) Jan (2019) 120 Calls (AXP190118C00120000) at $0.75 or lower.

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