Will there be a Santa Rally this year?
Trading View

Every year, we hear these phrases: “Sell in May and go away,” “January Effect,” “Monday Effect,” “Santa Claus Rally,” and so on. The problem is that none of these patterns is supported by solid evidence.

Take the “sell in May and go away” theory, for example. It suggests markets tend to underperform or become more volatile between May and October due to reduced summer trading volumes.

At first glance, it seems reasonable -— lower liquidity can lead to higher volatility, which might trigger market corrections. However, following this strategy would have meant missing out on rallies in recent years.

The same can be said of the opposite scenario, the so-called Santa Claus rally. This phenomenon is supposed to occur in the second half of December due to year-end portfolio adjustments, “window dressing”, etc.

However, this does not always happen, as general conditions must be favourable for growth. For example, this year, the Fed's turn to a more restrictive stance could slow the rally.

For those who missed it, last week, in addition to the 25 basis point rate cut to a range of 4.25%- 4.5%, the FOMC revised down the dot plot, indicating fewer rate cuts in the coming years.

Specifically, instead of the 3.4% previously forecast, interest rates are expected to average 3.9% in 2025. By 2026, rates are expected to stand at 3.4%, up from the previous forecast of 2.9%.

In addition, the long-term rate has been revised upward to 3%. This change in rhetoric and expectations comes down to the data: a stronger than expected economy and, more significantly, a slower pace of disinflation.

According to the new forecasts, inflation, as measured by the PCE index, will rise to 2.4% this year, up from 2.3% expected, and to 2.5% in 2025. For 2026 and 2027, inflation is forecast at 2.1% and 2%, respectively.

Markets reacted accordingly. The S&P 500 was down 2% on the week, the Nasdaq fell 1.8% (snapping a four-week winning streak), and the Dow gave up 2.3%, marking its third consecutive decline.

The good news is that the PCE index rose 2.4% in November, slightly below the forecast of 2.5%, giving hope that things are not as bad as the regulator paints them. But will it be enough to boost optimism?

TradingView is a leading global charting platform and social network, dedicated to providing traders and investors with access to high-performance data and sophisticated analytical tools that enable them to stay ahead of the curve in the fast-paced financial markets. With a mission to democratize the world's financial markets, TradingView has quickly emerged as one of the most popular and trusted platforms in the industry.

At the core of TradingView's success is its commitment to creating cutting-edge analytical tools that enable traders and investors to take their market research further. Through detailed interactive charts, a powerful stock screener, a comprehensive economic calendar, and more, TradingView empowers its users to identify even the most subtle market signals and leverage them to build robust and insightful analyses. Whether a seasoned professional or just starting out in the world of trading, TradingView's tools, resources, and community can help individuals make more informed investment decisions.

As the financial industry continues to evolve at breakneck speed, TradingView remains at the forefront of the pack, driving innovation and setting new standards for excellence in the field of financial and technical analytics. With a passionate and dedicated team of professionals, a commitment to cutting-edge technology, and a customer-centric approach, TradingView puts traders and investors first. Look first, then leap.

 

 

www.kitco.com