Santa Claus is ready to deliver a late gift to investors.
The “Santa Claus rally” — a period that covers the last five trading days of a year and the first two days of the new year — is set to come to Wall Street. The Standard & Poor’s 500 has climbed 1.1% so far as the rally heads into its final session on Friday, according to FactSet. If the gains hold, that bodes well for stocks the rest of the year, analysts say.
When stocks fall in that period, the decline tends to signal a bear market or a sizable decline is coming, according to The Stock Trader’s Almanac. Bear markets followed after the Santa Clause rally failed to materialize in 1999 and 2007.
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Still, the stock market may be due for a pause in January.
Stocks are showing signs of being inflated in price after the S&P 500 rose in 11 of the past 12 weeks, analysts say. The 14-day relative strength index, a widely watched stock market barometer, has climbed above 70, a reading that tends to signal that stocks are vulnerable to a decline.
“Given the recent rally, stocks could pull back in January,” says Keith Buchanan, portfolio manager at GLOBALT Investments.
The next catalyst for stocks, analysts say, is fourth-quarter earnings season, which kicks off later this month. Corporate profits proved to be more resilient than expected in the third quarter, which helped ease fears about trade tensions and economic growth.
The earnings outlook, however, hasn't improved much recently, according to Bank of America Global Research.
To be sure, stocks are sitting pretty heading into 2020. Since 1945, when the S&P 500 index has risen at least 20% in a year, it gained an average 10% the following year and was higher nearly 80% of the time, according to Sam Stovall, chief investment strategist at financial-research company CFRA.
“Long-term investors need to remember that it’s their time in the market that’s most important, not timing the market,” says Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers.
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January 03, 2020 at 12:01PM
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Santa is ready to deliver a late gift to investors with a stock market rally that bodes well for 2020 - USA TODAY
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