Wall Street is now completely dependent on Santa Claus rally to result in strong highs as the US equity markets eye 2023 with solid gains. S&P 500 has seen an increase of more than ~4% in the month of December alone and it has seen the rise of ~24% this year so far, bringing it within 1% of fresh all-time high. This index continues to eye its 8th straight positive week. Taking cues from the history, this momentum is expected to continue over short-term. More often than not, the year-end is the strong time period for stocks. This is referred to as “Santa Claus Rally.”
Santa Claus Rally remains high
Over the last few months, the hopes for Santa Claus Rally have remained high, as a result of solid optimism. The US Fed gave a surprise to investors earlier in December month as it signalled that its monetary policy tightening appears to be over and the apex bank is expecting rate cuts in 2024. This was followed by the signs that inflation has been moderating. Recent releases of the data on Friday further supported this trend, exhibiting annual U.S. inflation – which is measured by personal consumption expenditures (PCE) price index – further moderated to lower than 3% in November. Thus, Santa Claus rally might be in offing for the coming week.
Investors fear of missing out
Global investors have recently demonstrated a strong appetite for the equities. Clients of BofA purchased ~$6.4 billion of the US stocks on net basis in the recent week. This marks the largest weekly net inflow since the month of October 2022, as per the BofA Global Research’s report dated 19th December. Experts believed that there has been a strong rise in buying among the retail investors in just previous 4-6 weeks.
Some analysts expect that trading volumes for the coming week are expected to be thin, with investors enjoying their holiday breaks. This will leave stocks sensitive to unanticipated news or large trades.
On the other hand, the investors which are sitting on cash might want to participate in the Santa Claus rally. Thus, they might buy the equities this week if they have that “fear of missing out” thing on the equities.
Elsewhere, pan-European Stoxx 600 index saw the addition of ~0.14%. London’s FTSE 100 went up by ~0.04%, with revised reading of U.K. economy exhibiting that it contracted by ~0.1% in 3Q, worse than the previous expectations.
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