In 1972, the creator of the Stock Trader’s Almanac Yale Hirsch, identified the last five trading sessions of the year, along with the first two of the new year, as generally positive for the stock market. He dubbed the phenomenon a “Santa Claus Rally” in his Almanac which provides investors with statistical analysis of different trading days and time periods.
Investors Anticipating 2020 Santa Claus Rally
This year, investors are predicting another present from Santa Claus. It would certainly be a welcomed gift on the heels of a hugely volatile year.
The market crashed between late February and early April, with stocks losing as much as 30%. Yet, the market has also shown remarkable resilience as the U.S. economy emerged from lockdown, with the markets rallying back to not only recover lost ground, but to also trade at all-time historical highs of more than 30k on the Dow Jones Industrial Average.
At present, the market is currently on track to close 14% higher on the year, but, if the Almanac and bullish investors are right, it could end up even more than 15% on the year.
Lack Of Santa Claus Rally Would Present Buying Opportunity
Nonetheless, for every buyer there is a seller. And, bears worry that the rise in coronavirus cases, coupled with concerns about the upcoming Senate runoffs in Georgia, may cause some investors to keep their powder dry in this final week in trading.
If so, I believe it might represent a buying opportunity for well-diversified investors seeking an opportunity to buy-in. I would caution that these buying opportunities in the coming years could be rare (thanks to the expected stimulus and the old adage, “don’t fight the Fed”) and thus, it’s worth considering them on an ad-hoc basis as they’re presented.
Market in 2021
It is my belief that we will see some upside in the final week of trading, setting the stage for an even higher market in 2021.
We’ll soon find out but, thus far, the market is showing plenty of optimism. As such, investors may try to position themselves in this last week of trading for additional upside amid speculation of massive stimulus and an accommodative Federal Reserve in the coming year.
U.S. Dollar Weakness to Help Markets
Don’t forget the lower dollar’s effect on the overall market. The trillions of dollars already being pumped into the economy will contribute to a lower dollar and a lower dollar will enable American corporations to sell more of their goods abroad, thereby helping them to grow their earnings.
In addition, because the dollar is the world’s reserve currency, when the dollar trades lower against other currencies, foreign investors effectively pour more money into the markets which adds an inflationary effect.
The Market Is NOT All Fundamentals
Increasingly, investors are turning their backs on the reality of a challenging economic environment as they try to predict how the economy will fare 6-9 months into the future. I have real concerns about the fundamentals of our economy, including my worry that only those with assets will benefit in a rising stock market environment. As such, I encourage first time investors to make sure they have a comfortable amount of money saved before risking money in the markets. Nonetheless, it’s critical to at some point be IN the markets, as over a twenty year time period, an equity index like the S&P is very hard to beat.
In sum, investors would be rise to remember that, over the long haul, it’s never wise to bet against America. Yes, we have our challenges from time to time –and those challenges are reflected in stock market weakness, nonetheless, as our economy returns to stability the market is likely poised to move another leg higher.
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