Santa could be on his way for stock investors in the coming week
After a period of turbulence, the bridges could be cleared for a good old-fashioned Santa Claus rally in the week to come.
Shares were higher last week after a difficult period that continued through Monday. The S&P 500 rallied and was up about 3.5% for December on Thursday.
âI think all of the things we’ve been concerned about since December are to some extent in the rearview mirror,â said Art Hogan, chief market strategist at National Securities. “We know what [Federal Reserve] go do. We know that while this new variant is spreading faster, it’s not as dangerous, and we know that the Build Back Better legislation is now the business of 2022 … I think the market can find a way out. less resistance to the upside as we finish things off. “
The market has a long history of trading days before the end of the year being positive for stocks. According to “Stock Trader’s Almanac”, the Santa Claus rally period – the last five trading days of the current year and the first two of the new year – is primarily a time when the stock market wins. The S&P 500 has been positive almost 79% of the time on those days since 1928 and has gained an average of around 1.7% per rally.
Add to that the fact that when the market had a strong year, momentum historically continued until the last trading sessions. In this regard, the S&P 500 is up about 25% for the year.
According to Bank of America, while the S&P 500 has already posted such strong gains, the past six sessions are positive. Since 1980, there have been 10 instances where the S&P 500 was up 20% or more at the start of the latter part of trading and in nine of those years it ended the past six days higher.
A particularly rocky month of December
The stocks are approaching the last sessions of the year with a tailwind, after several weeks of turbulence.
âThis is the fourth rockiest December since 1987. The average daily move in the S&P 500 was 1.1%,â Hogan said. “It’s a lot of action.” The most volatile months of December were in 2000, 2008 and 2018.
Hogan said the volume for the last week of the year was typically 20-30% lower than normal. âIn a low volume environment, when the market chooses a direction, it tends to move in that direction in a robust way,â he said.
Paul Hickey, co-founder of Bespoke Investment Group, said the positive news about the Covid omicron variant this week was the catalyst that reversed the market sell-off. Studies have shown that omicron is milder than other variants of the coronavirus. Additionally, the Food and Drug Administration has approved pills from Pfizer and Merck for the treatment of Covid-19.
âAs the market focused on anything that could go wrong since Thanksgiving, people now have a sunnier view,â Hickey said. He expects this view to likely prevail over the coming week.
âAs early January approaches, we’ll see how the markets are positioning themselves,â Hickey said. He said investors will start to focus on the next earnings season; they don’t seem overly optimistic, which could lead to some positive surprises.
âAt the start of the last earnings season, there was a ton of negative sentiment based on supply chains, inflation and labor shortages. We ended up having a decent earnings season. It’s more mixed this time around, âHickey said.
High growth stocks hit
Sales in November and December rocked stocks. Some high-growth stocks and ETFs fell sharply as investors turned to safety games. Funds that took their shares in December include the Ark Innovation ETF and the iShares Expanded Tech Software Sector ETF.
âI think some of those growth sectors that have been hit hard will do a little better. They could see a rebound at the start of the year,â Hickey said. âThey sold for a number of reasons. One was concerns about the Fed. Plus people had made a lot of money and the feeling was that taxes were going up. People were selling stocks before taxes were higher. It’s more of a question now with a divided Congress. “
Over the past week, the fate of President Joe Biden’s Build Back Better stimulus legislation was called into question when West Virginia Senator Joe Manchin said he would not support it. Analysts expect to see other versions of the spending plan.
Bespoke’s Hickey said January could be positive for stocks, and with opportunities for some stocks to rebound if stung by tax loss selling. “The effect of January is positive. All of those tax-losing sellers who have squeezed multiples are buyers,” he said.
One of the stocks he watches is Boeing. âIt’s one of the few large cap stocks that has gone down a lot. I think you can see that,â he said. The aircraft maker gained more than 6% last week, but is still down 16% in the past six months.
Price increases and housing data
As the Fed plans three interest rate hikes next year, economic data of all kinds is at the fore of the markets.
The housing market has been a huge beneficiary of the near zero rate policy, so all housing data will be closely watched. On Tuesday, home price data will be released. Pending home sales are due to be reported on Wednesday.
David Petrosinelli, senior trader at InspereX, said the next big data point for the market will be December jobs in early January. He expects the markets to be relatively calm next week.
âNext week is usually a snoozer, the week before New Years,â he said. “All the action is going to happen the first week of January.”
Calendar for the upcoming week
9:00 a.m. S & P / Case-Shiller House Prices
9:00 am FHFA house prices
8:30 am Advanced economic indicators
10:00 a.m. Pending door-to-door sales
8:30 am Unemployment claims
9:45 am Chicago PMI