Wall Street at record levels ahead of expected 'Christmas spike' – E24

– It seems as if the markets think you should have both the bag and the sack, says chief strategist.

It's been a good year for US stock markets.

So far this year, the broad S&P index is up nearly 24 percent. The strongest development was the Nasdaq Composite, which was dominated by technology stocks, which rose more than 43 percent, while the Dow Jones rose about 13 percent.

When the New York Stock Exchange opens on Tuesday, a short but traditionally strong week awaits.

A touch of FOMO?

The so-called “Christmas rally” has been explained, among other things, by the stock rally in January, by investors who want to invest cash bonuses or sales at a loss to reduce the tax burden.

Meanwhile, there is little evidence of this phenomenon, he writes InvestopediaWhich indicates that any positive impact on stock markets at the end of the year is likely attributable to the Santa effect.

– It's likely that something has a historical basis, says chief strategist Christian Lee at Formue to E24.

He points out that investors like to sit in favorable positions at the end of the year.

– They do what is called “window dressing” so that investment portfolios look good at the beginning of the year. It is also possible to touch someone FOMO FOMO “Fear of missing out,” worrying about missing out on an exciting or interesting eventIn anticipation of a possible rally at Christmas and January and I want to risk a bit more.

– Significant deviations can be hidden

Historical data, Lee points out, provide some support for this phenomenon.

During the period known as “Santa's Christmas Parade,” the Standard & Poor's Index rose an average of 1.3 percent since 1950, according to bank data. Stock trader calendar. If there is no recovery, it may indicate that difficult times are coming. This was evident in relation to the information technology bubble that burst in 2000 and the financial crisis in 2008, according to the site.

Lee says he will be careful not to focus on historical averages.

– Significant deviations can be hidden there from year to year. At the same time, it is very close to the “all-time high” in the US market now. This in itself does not necessarily mean anything, but as I see it, the market has a relatively optimistic outlook right now.

The chief strategist notes that the market is now factoring in six interest rate cuts in 2024, twice that number. Federal ReserveFederal ReserveUS Central Bank (Federal Reserve) It was opened at the last price meeting.

In addition, global and US dividends are expected to grow by about 10 percent. The two things are not completely related. If the Fed cuts interest rates six times, it will be due to marked weakness in the economy.

After that, it will be difficult to achieve such high profit growth, according to Lee.

– It seems as if the markets think you should get bags and bags.

– High sensitivity to disappointment

Lee says he believes the market can continue to rise if key economic numbers come out right, inflation numbers continue to fall and no Fed members make too aggressive statements.

– There is a high sensitivity to disappointment at this moment. The market believes that things will go well in 2024. What can hold things back is if you get financials that are much weaker or stronger than expected.

Lee says weaker data will reignite recession fears, while stronger numbers could pressure the central bank to raise interest rates again.

The economy is in a state of constant change A “catch 22” situation.A “catch 22” situation.A dilemma or conflicting situation , In reality. Things don't have to go too well or too badly – ​​market prices are the same “Golden Hair Script”“Golden Hair Script”It is a situation in which price growth is reduced while at the same time avoiding economic decline and high unemployment rates. This makes it sensitive to other news.

Risk appetite is on the rise

A positive mood and lower fear index could help push the market lower in the short term, according to Lee.

Typically, the stock market has more upside potential when the mood among investors is pessimistic and/or there is high but decreasing fear as is the case with the VIX index, he says.

On the other hand, risk appetite is on the rise again.

– Large management environments could choose to increase their weight in stocks if the positive trend continues, which in turn could help push the market higher, says the chief strategist.

He points out that there is also about $6 trillion invested in U.S. money market mutual funds, which is much higher than before the pandemic.

-If interest rates fall, it may help to increase interest in putting money in stocks instead. It will be able to provide support for market development in 2024.