Santa Claus could arrive next week just in time to help stocks end the year on a high note following this week’s selloff. But whether St. Nick brings presents or coal, investors will scrutinize the health of the bull market heading into 2025. December is historically the second-best month in a U.S. presidential election year for the Dow Jones Industrial Average and S & P 500, according to the Stock Trader’s Almanac . On average, the two indexes gain 1.3% and 0.8% on the month, respectively, during such years. For the Nasdaq Composite, presidential election year Decembers are usually the fifth-best of the year, with the tech-heavy index rising an average 0.9%. That doesn’t seem to be the case this time around. With just a week and a half left to go in the year, the Dow is on track for a losing month, down more than 5%. On Wednesday, the 30-stock index tumbled 1,100 points , capping a 10-day decline that was its longest going back to 1974. The mid-week slump came after the Federal Reserve said it would pare back its interest rate-cutting campaign. The S & P 500 is down more than 2% in December, while the Nasdaq Composite is the lone index set to close out the month with a gain, rising nearly 1% so far. Still, the bulk of gains in December usually come in the back half of the month, when a Santa Claus rally, and low trading volumes, could give this year’s monster run one final push toward the finish line — especially after this week’s rout flushed out some of the exuberance in equities. “It’s a pretty good setup,” said Eric Clark, portfolio manager at the Rational Dynamic Brands Fund. .DJI 5D mountain Dow Jones Industrial Average, over 5 days Next week, the New York Stock Exchange closes early Tuesday for Christmas Eve, at 1 p.m. ET. Markets are closed Wednesday, on Christmas Day. The market’s ‘pass/fail test’ A Santa Claus rally — which typically occurs in the last five trading days of the year and the first two in January — could be just the boost the S & P 500 needs. In data going back to 1969, the broader index added 1.3%, on average, during this period, according to the Stock Trader’s Almanac. Some investors expect it’s possible the S & P 500 could rally more than that next week, possibly even ending the year at 6,100, or above its previous all-time closing high. The broader index closed at a record on Dec. 6, at 6,090.27, and was last floating around 5,880, or more than 3% off that level. “I think it’ll be close whether or not we kind of close at a new high,” said Mike Dickson, head of research and quantitative strategies at Horizon Investments. “It will be a coin flip on whether or not we actually cross that.” .SPX 1M mountain S & P 500, over 1 month But the Santa Claus rally could also show investors what to expect heading into the first quarter of next year, as it is a bullish indicator if it materializes, and a bearish one if it does not. As it is, some market technicians are carefully watching the activity this week and next, saying that any weak action could mean prices could continue to grind lower. Katie Stockton, founder at Fairlead Strategies, told CNBC’s ” Squawk Box ” on Thursday that a failure to “recover pretty dramatically” by Friday’s close would trigger intermediate sell signals. Others also took a cautious stance. Clark at Rational Dynamic Brands said he would carefully review any response to this week’s selloff — such as any dip-buying or further losses — to determine how he should position for next year. “When you get a big drawdown like this, you want to measure the response of the rally. Is it broadly strong? Are there only certain things that are participating? Was this poor breadth over the last 10 days, was that the harbinger of something? Was that the market telling you not everything is going to work as we turn the page into Q1?” Clark asked. “If we don’t get a rally, given how oversold we are, that is even more telling to me, and probably will beg for a little bit more caution and defensiveness in a portfolio, maybe even holding a little bit more cash.” He continued: “But whatever we get next week, and into the first three or four days of the year, to me, is going to be a bit of a pass/fail test, to give me an indication of risk taking into January.” Week ahead calendar All times ET. Monday, Dec. 23 8:30 a.m. Chicago Fed National Activity Index (November) 10 a.m. Consumer Confidence (December) Tuesday, Dec. 24 8:00 a.m. Building Permits final (November) 8:30 a.m. Durable Orders preliminary (November) 10 a.m. New Home Sales (November) 10 a.m. Richmond Fed Index (December) NYSE closes 1 p.m. Wednesday, Dec. 25 Christmas Day Markets closed Thursday, Dec. 26 8:30 a.m. Continuing Jobless Claims (12/14) 8:30 a.m. Initial Claims (12/21) Friday, Dec. 27 8:30 a.m. Wholesale Inventories preliminary (November)
A Santa Claus rally could come just in time next week to help stocks end the year on a high note
Dec 21, 2024
