- The month of November has been positive for the S&P 500 again, and as we head into December, this is one of the more interesting times of the year.
- This is a month that will be noisy, mainly due to the fact that we had been running straight up in the air for some time now.
- However, there is a bit of history when it comes to December that you should be aware of when it involves indices in the United States.
- There is in fact something known as the “Santa Claus rally” that Wall Street looks forward to every year.
The “Santa Claus rally” is just simply the tendency for the market to rally during the last couple of weeks of the year as fund managers try to catch up to their benchmarks. Imagine this: you run millions of dollars of other people’s money all year, to find yourself a couple of percent short of acceptability. It is at this point that you jump into the stock market and try to make moves and gains to pad the results for the end of the year. This happens every year, although it’s not necessarily true that every year is successful for these people. However, it is a well-known phenomenon, so typically it becomes a “self-fulfilling prophecy”, as traders take advantage of the momentum that enters the market.
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That being said, we are a little stretched so I would not be surprised at all to see at least one week of negativity during the month. As things stand right now, the 6000 level should be thought of as an important fulcrum point, but I believe that the actual “floor in the market” is closer to the 5700 level. I do believe that at the end of the month, we will be higher in the S&P 500, especially as we not only have the “Santa Claus rally”, but we also have just exited and earning season that really wasn’t too bad. Because of this, unless we get some type of external shock, I anticipate that the S&P 500 will continue to celebrate the idea of the US economy being stronger than anticipated, and of course the fact that a very business friendly administration will be taking the reins of power in January.
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