It looks like Santa Claus is on his way to stock investors in the week ahead – CNBC
After a period of turbulence, the decks may be cleared for a good old-fashioned Santa Claus rally in the week ahead.
Stocks were higher in the past week, after a rough stretch that continued into Monday. The S&P 500 recovered and is up about 3.5% for December as of Thursday.
“I think all the things we’ve been concerned about for the month of December to a certain extent, are in the rearview mirror,” said Art Hogan, chief market strategist at National Securities. “We know what the [Federal Reserve] is going to do. We know while this new variant spreads faster, it’s not as dangerous, and we know Build Back Better legislation is now 2022’s business… I think the market can find a path of least resistance to the upside as we wrap things up.”
The market has a lot of history on its side that trading days before the year-end are positive for stocks. According to the “Stock Trader’s Almanac,” the Santa Claus rally period — the final five trading days of the current year and first two of the new year — is mostly a time when the stock market gains. The S&P 500 has been positive nearly 79% of the time on those days since 1928 and has gained an average of about 1.7% per rally.
Add to that the fact that when the market has had a strong year, the momentum historically has carried into the final trading sessions. In that regard, the S&P 500 is up about 25% for the year.
According to Bank of America, when the S&P 500 has already seen such solid gains, the final six sessions are positive. Since 1980, there have been 10 instances where the S&P 500 was up 20% or more going into the last stretch of trading and in nine of those years, it ended the final six days higher.
A notably rocky December
Stocks head into the final sessions of the year with a tailwind, after several weeks of choppiness.
“This has been the fourth rockiest December since 1987. The average daily move for the S&P 500 has been 1.1%,” said Hogan. “That’s a lot of action.” The most volatile Decembers were in 2000, 2008 and 2018.
Hogan said volume in the last week of the year is typically 20% to 30% lower than normal. “In a low-volume environment, when the market picks a direction, it tends to move in that direction in a robust fashion,” he said.
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