Monday, July 22, 2024

‘Santa’ rally could push stocks higher, even after ‘amazing’ year

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This year has been a historic year for just about every metric – and that includes the stock market. For those like Ryan Detrick of the LPL, the wild market moves in 2020 can be summed up in one word: “Amazing,” he says. Fortune.

“This will be the first year in history where stocks have fallen 30% for the year at one point and managed to finish higher,” says Detrick. “That, to me, sums up a lot – we’ve never seen a round trip like 2020.”

Indeed, after a record dive into a bear market in March, stocks have managed to fully recover and are currently trading around all-time highs, up 14% for the year at Tuesday’s close.

Although the late stocks traded rather sideways, December is generally a strong month for investors, and some strategists see reason to believe stocks could end the year on a positive note.

A rally at the end of December?

To be sure, historical models do not always hold up when it comes to the market (this has been true of 2020 sometimes as well as).

But LPL’s Detrick points out that historically (going back to 1950 for the S&P 500), the second half of December tended to be strong for investors.

He says that on average December is up about 1.5%, but that “almost all” the gains tend to accumulate from December 15.

And while 2020 has been unpredictable to say the least, “We wouldn’t want to bet against that this year,” he says. Indeed, with a vaccine starting to be distributed, a stimulus bill likely to be adopted, and traders and investors are starting to take time off for the holidays, Detrick believes the volume and volatility should be light. “It can lead to a bit higher movement towards the end of the year, this historic Santa Claus rally,” he says.

Others, like Charles Schwab’s chief investment strategist Liz Ann Sonders, note that as of 2021, there are two main risks: one is that “things are even better than what we are at. we’re waiting, ”which could create the“ possibility of overheating growth, maybe more inflation, and putting the Fed in a tough spot in terms of “should they give up on this easy policy?” Sonders says Fortune. “The other extreme would be the opposite: that we have built in a set of pretty positive assumptions, and what if several or more of them go wrong?”

Prepare for a withdrawal

Indeed, some on Wall Street are already anxious that the markets have overheated and a sell – or at least take a break – could be in the cards.

A big theme that many strategists noticed this year was its strange similarity to the bull market of 2009. (See the chart via the Schwab Center for Financial Research below.) And according to some strategists, this map could signal turbulence ahead.

“No one knows if the roadmap will continue until 2021, but if it does, the second half of January looks a bit worrying,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab . wrote in a recent tweet.

But even if 2021 doesn’t continue to follow the 2009-10 chart, Detrick of the LPL believes that some of the “record” of recent months in the market “could steal, if you will, a bit from some of the gains next year, ”he said, highlighting valuations as one of the“ biggest concerns ”. He believes a 10% correction would make sense in the first quarter of 2021 and suggests investors consider rebalancing with upward or downward movements.

But in the meantime, Schwab’s Sonders thinks investors can take a pretty big lesson from 2020 as next year approaches: “I don’t think the market should be based on the assumption that the Fed will always support the market.” , she says. .

“When we have the next correction – and we will have one, I don’t know when – if it doesn’t threaten the stability of financial systems, if it’s not due to a crisis, I don’t think we can put it back – called ‘Powell Put’, that the Fed will always be there, ”Sonders says. “We need to be aware of this in 2021.”

More to read absolutely financial cover of Fortune:


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