Stock Market’s Year-End Rally: Will It Arrive Late or Not at All?
As the holiday season approaches, investors are wondering if the traditional year-end rally, also known as the “Santa Claus rally,” will materialize. Historically, this period, which begins on December 17 and ends on January 3, has seen the stock market experience a significant upswing. However, this year, stocks have struggled ahead of the rally, leaving many investors nervous.
A Late Start or No Start at All?
According to a team of strategists at Ned Davis Research, when stocks struggle during the days leading up to Christmas, they tend to compensate investors with strong gains during the five trading days following the holiday break. In fact, in the 17 cases where the first five days before Christmas have been negative, the average return was 2.0% in the five days after.
Historical Trends Suggest Hope
Despite the current struggles, history suggests that there is still hope for a year-end rally. Since 1950, the S&P 500 has averaged a 1.3% gain during the Santa Rally period, climbing 77% of the time. Additionally, Ned Davis Research’s cycle composite illustrates how stocks typically finish the year strong.
Reasons for Optimism
Setting aside seasonality, there are other reasons why stocks could reverse some of their December weakness before New Year’s Day. For one, the U.S. market has fallen into short-term oversold territory, according to several indicators maintained by Ned Davis Research. Furthermore, a sentiment tracker employed by the research shop has detected a notable deterioration in investors’ optimism as stocks have sagged since the start of December. This could mean investors have more money sitting in cash ready to deploy to push the market higher.
Solid Gains in 2024
Even if the year-end rally doesn’t arrive, investors are still sitting on solid gains in 2024. The S&P 500 was up more than 24% year-to-date as of mid-December, according to FactSet data. While major indexes ended last week with losses, the Nasdaq Composite continued to climb, with gains for shares of Big Tech stocks like Nvidia Corp., Broadcom Inc., and Tesla Inc. helping to keep the index supported.
Will the Rally Materialize?
Only time will tell if the year-end rally will materialize, but historical trends and current market conditions suggest that there is still hope for a strong finish to the year. As investors navigate the holiday season, they would do well to keep a close eye on market developments and be prepared to take advantage of any opportunities that may arise.
Leave a Reply