Investors hoping for the year-end to bring stock market gains after a punishing year have history on their side as U.S. equities traditionally rally during the month of December, but many remain skeptical of forecasting a rise.
“December is usually a good time for investors but right now they are stuck because it’s really the focus on rates that will cause the market to go up or down in the short term,” said Sam Stovall, chief investment strategist at CFRA Research. At the same time, U.S. stocks have risen during the last five trading days of December and the first two days of January 75 per cent of the time since 1945, according to CFRA, in a so-called Santa Claus Rally. This year, the time period starts on Dec. 27. The average Santa rally has boosted the S&P 500 by 1.3 per cent since 1969, according to the Stock Trader’s Almanac.
Investors are pricing in a 75 per cent chance that the Fed will raise rates at its Dec. 14 meeting by 50 basis points to a target rate of 4.5 per cent, while the probability of another jumbo 75 basis point move is at 24 per cent according to CME’s FedWatch tool. Fed Chair Jerome Powell, who will speak on Nov. 30, has signalled that the central bank could shift to smaller rate hikes next month but has also said rates ultimately may need to go higher than the 4.6 per cent that policy-makers thought in September would be needed by next year.
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