Wall Street rises as ‘Santa Claus Rally’ begins

A rally in the group that has led Wall Street’s gains in 2024 lifted stocks in a relatively quiet session ahead of Christmas.
Following a strong day for big tech, the shares continued to power ahead on Tuesday. Tesla Inc. led megacaps higher. Broadcom Inc. and Advanced Micro Devices Inc. climbed as President Joe Biden’s team launched a probe into Chinese-made chips. In a shortened pre-holiday session, the S&P 500
“The action of the past few weeks shows that the big-cap tech names are still the key leadership group in today’s stock market,” said Matt Maley at Miller Tabak. “These big-tech names are highly overweighted in the portfolios of a huge number of institutional investors. Any buying they do over the next week is likely to be concentrated in these names.”
Equity investors are also hoping for what’s known as the “Santa Claus Rally,” in which stocks rise during the final five trading sessions of a year and the first two of the new one. This time around that window started Tuesday.
“Santa Claus rally could still be alive, with strong seasonality into the end of the year,” said London Stockton at Ned Davis Research.
Since 1950, the S&P 500 has generated average and median returns of 1.3% during this period, widely outpacing the market’s average seven-day gain of 0.3%, according to Adam Turnquist at LPL Financial.
“When investors are on the ‘nice’ list, and Santa delivers a ‘positive’ Santa Claus Rally return, the S&P 500 has generated an average January and forward annual return of 1.4% and 10.4%, respectively,” he said.
The S&P 500 rose 1.1%. The Nasdaq 100 added 1.4%. The Dow Jones Industrial Average gained 0.9%.
The yield on 10-year Treasuries was little changed at 4.59%. The Bloomberg Dollar Spot Index barely budged.
While a positive “Santa Claus Rally” has preceded a 10.4% average annual gain for the S&P 500 since World War II, Sam Stovall at CFRA says a more accurate indicator in his view is the “January Barometer.”
That’s a market hypothesis positing that January’s performance predicts the year’s performance. The term was coined by Yale Hirsch, creator of the Stock Trader’s Almanac, in 1972.
Since 1945, when the year started with a gain in January, the S&P 500 rose an average of 18.3% in price during the entire year, Stovall at CFRA said. If the first month saw a decline in price, however, the average full-year return was negative 1.9%.
With the market up over 25% this year and no corrections of more than 10%, the S&P 500 has managed to stay solidly above its 200-day moving average for the entirety of 2024, noted Bespoke Investment Group strategists.
“Barring a significant market selloff in the last few trading days of the year, this will be the 12th year since 1952 (when we went to the current 5-day trading week at the NYSE) that the S&P has traded above its 200-DMA all year,” they said.
The average next-year change following these years has been a gain of just 4.6% compared to the average gain of 9.2% for all years, Bespoke noted.
Last week, Bank of America Corp. clients were large net buyers of US equities, according to strategist Jill Carey Hall. They bought American shares for the seventh consecutive week.
Similar to the prior five weeks, clients bought both single stocks and exchange-traded funds, with bigger inflows into the former, she noted. Flows were primarily in large caps.
Investors should have a more-balanced approach in US stocks over the first quarter, according to Citigroup Inc. strategists led by Scott Chronert, who see a greater opportunity in defensive sectors.
They raised health care to overweight, noting valuations are now lower and fundamentals seem close to inflection point. Meantime, they are selective on growth stocks, looking for stronger fundamental trend versus valuation and potential margin improvement.
Citi’s strategists are overweight in media, internet and semiconductors, while raising software to market weight.
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