NEW YORK, Dec 25 (Reuters) – Wall Street is betting the so-called Santa Claus rally will bring record highs as markets post strong gains to end 2023.
In December alone, the S&P 500 index grew by more than 4%, and since the beginning of the year it has already risen by 24%, coming within 1% of a new historical high. The index may also show an increase for the eighth week in a row.
If history is any guide, this momentum is likely to continue in the short term. The end of the year tends to be a strong period for stocks, a phenomenon dubbed the Santa Claus rally.
The S&P 500 averages a 1.3% gain over the last five days of December and the first two days of January, according to Stock Trader’s Almanac data since 1969. This rise is explained by various reasons – from purchases before the New Year following sales to reduce taxes to the general pre-holiday mood.
This year optimism is strong. In early December, the US Federal Reserve surprised investors by saying monetary tightening was likely over and forecast rate cuts throughout 2024 following signs that inflation continued to slow. The November core price index, which measures US personal consumption, released on Friday, also pointed to easing price pressures.
“The narrative will continue to be one of a dovish Fed turn,” said Angelo Kourkafas of Edward Jones. “This is supporting markets and sentiment and is unlikely to change this week.”
Investors have shown a lot of appetite for stocks lately. Net purchases of U.S. stocks by BofA clients totaled $6.4 billion in the previous week, the largest net weekly inflow since October 2022, according to a Dec. 19 report from BofA Global Research.
At the same time, the past four to six weeks have seen a sharp increase in buying among retail investors, analysts at Vanda Research said in a note.
“Individual investors, who have been aggressively pushing yields higher in recent months, have refocused their purchases on riskier stocks following the FOMC (Federal Open Market Committee) pivot and increased arguments for a soft landing,” analysts at Vanda said in a note.
“We expect this trend to continue into the new year as yields remain under pressure.”
Of course, trading volumes are expected to be light for the rest of the year as investors head into the holidays, making stocks especially sensitive to unexpected news or large transactions.
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(Lewis Krauskopf)
2023-12-25 11:18:19
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