The period between now and year-end marks a historically bullish final stretch of the year for U.S. stocks, particularly just before and after Christmas. The question for investors is whether favorable seasonal factors will be outweighed by economic fundamentals.The momentum toward a year-end rush to stocks seems to only be getting stronger now that the S&P 500 SPX has rallied 12.
Major indexes logged gains in a holiday-shortened Thanksgiving week, with the Dow up 1.8%, the S&P 500 gaining 1.5% and the Nasdaq Composite advancing 0.7%. U.S. growth turned positive in the third quarter and inflation appears to be easing, based on October’s consumer-price index in which the annual headline rate dropped to 7.7% from 8.2% previously. Yet price gains are not coming off fast enough for the Federal Reserve to completely abandon aggressive rate hikes, which could tip the world’s largest economy into a downturn.
“Seasonality will offer a bit of a lift to stocks toward the end of the year, and I think investors are expecting the Federal Reserve to hike by 50 basis points in December and maybe not be all that hawkish in their statement,” Stovall said via phone. “Right now, the stock market is assuming we don’t fall into a recession or, if we do have a recession, it will be mild and that the Fed will likely lower interest rates in the latter part of 2023.
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