Santa Clause Rally: New Report By Safetradebinaryoptions Predicts Stock Rise This Christmas

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Santa Clause Rally: New Report By Safetradebinaryoptions Predicts Stock Rise This Christmas

December 06
14:56 2022

Analysis of Google Trends suggests that searches for “Santa Claus rally” have spiked in the past seven days due to the stock market’s tendency to rise in December. 

A new finding by the financial information website Safetradebinaryoptions analyzes stocks’ rise during the holiday season and why 2022 will likely follow this trend. 

Saqib Iqbal, the author at Safetradebinaryoptions, commented on the findings:

“Since 1950, December has been a bright month for stocks. The stock market frequently performs well following midterm elections, and we’ve seen that so far in 2022. However, investors are rushing to figure out how the Fed would manage future interest rate hikes as the central bank attempts to reduce inflation to its 2% target.”

The phrase “Santa Claus rally” was first coined in the 1970s to describe this pattern of market upticks around the holidays. There are several possible reasons behind this phenomenon. 

  • Trading activity is often low, as many institutional investors take the week after Christmas off. This gives more opportunities to retail investors, who are mostly bullish. 

  • Investors buy stocks ahead of January, as stocks tend to rise at the beginning of the year (known as the “January Effect”). 

  • The week between Christmas and New Year’s tends to spark optimistic outlooks amongst investors. 

  • End-of-year bonuses and Christmas presents provide many people with funds to invest in the stock market.

While 2022 began with stocks at a record high, the S&P 500 has since fallen and is expected to be down around 17% in 2023 due to interest rate hikes. The Federal Reserve has been raising interest rates for months to combat decades-long rising inflation. 

However, markets have risen in recent weeks, owing in part to anticipation that the Fed may delay rate rises.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said in the FOMC meeting on November 30. He stated that the Fed’s rate hikes might begin to stall at its next meeting on December 14.

Stocks jumped in response to this statement, with a positive close for all three main indexes on expectations of a 50-basis-point rise at the Fed’s next meeting — significantly less than recent 75-basis-point raises. 

The S&P 500 rose 5.4% in November, the Nasdaq Composite rose 5.7%, and the Dow Jones Industrial Average rose 4.4%, thanks partly to its strongest day in three weeks following Powell’s speech.

So, will we see a Santa Claus rally this year? 

December began with a solid employment report, which pushed stocks down on Friday. 

According to the Bureau of Labor Statistics, the US created 263,000 jobs in November, far more than predicted. The unemployment rate remained stable at 3.7%. It is an example of good news becoming bad news for investors, as it may push the Fed to raise interest rates further.

A so-called “Santa Claus rally” is possible this year, as history tells us when the market loses ground until till-year-date, it surges during the last week of December. 

This year has also seen record highs in consumer spending, with over 200 million buyers participating in Black Friday and Cyber Monday. This means retail investors can drive the stocks up. 

But according to history, a Santa Claus rally will only appear on Christmas, much like the man himself. Be sure to keep an eye out for it this holiday season. 

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