The history of “Wall Street” bears witness that the month of December every year brings highs that soar high in US stocks, and this represents a bright spot in a much darker year for investors and promises to achieve some gains that they were often denied. Although they are skeptical that these hikes will happen as the Fed tightens.
According to data from the investment research company “CFRA”, the “Standard & Poor’s” index achieved gains in December, by an average of 1.6%; This is higher than the average for any other month of the year and more than double its 0.7% gain for all months.
On the contrary, the month of September was the worst month for the index in terms of the average rise in stocks, as its average decreased by 0.7%.
Although many investors are optimistic regarding December’s gains, following suffering a 16% decline in the index so far this year, they are suspicious because the measures taken by the US Federal Reserve to aggressively tighten interest rates to fight inflation are affecting the market.
What matters this year, some experts say, is how likely the Fed is to raise the leader by 75 or 50 basis points, and whether there will be any dovish commentary that it will hike it once or twice next year and then stop.
- height triggers
December is usually a good month because fund managers buy stocks that have outperformed throughout the year to improve the financial condition of their portfolios, which is something that stimulates stocks. Also, at the end of the year, there will be inflows and a decrease in stock trading operations due to the large number of holidays.
According to CFRA, it has been observed since 1945 that US stocks rose during the last five trading days of December and the first two days of January 75% of the time; These dates coincide with the Christmas and New Year celebrations, so it is called “Santa Claus’s rise.” And this year the time period starts on December 27th.
As evidenced by the Trader’s Almanac, this Santa’s average rise has boosted the S&P by 1.3% since 1969.
- A different end of the year
With all of the above, the situation this year is different as investors’ focus has largely shifted to the Federal Reserve and the pace at which it will continue to raise interest rates as it attempts to reduce inflation from its highest level in almost 40 years.
Investors are placing a 75% chance that the Fed will raise interest rates at its December 14th meeting by 50 basis points to the target of 4.5%, and some believe that another hike will follow.
The minutes of the Fed’s November 2 meeting, which were released on Wednesday, showed that the vast majority of policymakers agreed that it was likely, and soon, that it would become appropriate to slow the pace of rate hikes, although Fed members believe it is not clear how much. The final must be high interest.
Another massive increase in interest rates might stem the more than 10% rise that Standard & Poor’s has achieved since the beginning of October, fueled largely by hopes that inflation has peaked from its highest levels in 40 years, causing the Fed to slow down and stop it. Ultimately, this rate hike cycle, which is the strongest since the 1970s.
Federal Reserve Chairman Jerome Powell has indicated that next month the central bank may shift to a slower pace of rate hikes but also said rates may eventually need to rise above the 4.6% that policymakers had thought. September they will be necessary by next year. It is worth noting that Powell will speak on November 30.
- Low corporate valuation
In a commentary released on Monday, strategists at Goldman Sachs said the sharp decline in the valuation of public and private companies is one of the painful results of rising interest rate costs, which is likely to mean the S&P 500 will drop 9% to 3600 over the next three months.
However, there may be other reasons to hope for another seasonal rally this year. “According to data from S3 Partners, short sellers have covered nearly $30 billion in short positions since the start of the month, with most covering consumer discretionary, healthcare and some stocks.
Short sellers reduce positions as the market rises and incur significant losses in the market and may cut positions in anticipation of a year-end rally.
One analyst says that the painful declines in both US stocks and bonds have made both assets very attractive to long-term investors.
Which, according to experts, would be a good thing if the investor has a one-year time horizon, but not without some potentially big fluctuations in the next quarter or two.
- Highlights of the week
Monday
12:00 Market Watch interview with the President of the Federal Reserve Bank of St. Louis, James Bullard
Tuesday
9:00 US S&P/Shiller Case Home Price Index Seasonally Adjusted Annual Average
9:00 US House Price Index from the Federal Housing Finance Agency/ Sept 9
10:00 November Consumer Confidence Index.
Wednesday
8:15 ADP Employment Report/November
8:30 Review of real GDP (seasonally adjusted annual rate)/Q3
8:30 Real GDP (seasonally adjusted annual rate) / Q3
8:30 Real Domestic Final Sales Review (Seasonally Adjusted Annual Average) / Q3
8:30 Merchandise Trade Deficit (Advance)/Oct
10:00 Job Opportunities/Oct
10:00 Leave work/Oct
10:00 Pending Home Sales Index/Oct
13:30 Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution
14:00 «Big Book»
Thursday
8:30 Initial Jobless Claims / Nov. 26
8:30 Invested Claims/November 19
8:30 PCE Price Index/Oct
8:30 Core PCE Price Index/Oct
8:30 PCE Price Index (YoY)/Oct
8:30 Core PCE Price Index (YoY)/Oct.
8:30 Real disposable income/Oct
8:30 Real Consumer Spending/Oct
Friday
8:30 Nonfarm Payrolls (level change)/Nov
8:30 Unemployment Rate / November
8:30 Average hourly earnings/November
8:30 Labor Force Participation Rate (25 to 54 Years Old)/November