Santa delivered a late gift to investors, and here's what it signals for 2020
Santa Claus delivered a late gift to investors.
The “Santa Claus rally” – a period that covers the last five trading days of a year and the first two days of the new year – came to Wall Street. Over that span, the Standard & Poor’s 500 index edged up 0.4%, according to FactSet.
And that bodes well for stocks the rest of the year, analysts say.
Geopolitical tensions in the Middle East threatened to upend the rally. Stocks slumped Friday after a U.S. airstrike killed a top Iranian general, cutting into what had been a 1.1% gain for the S&P 500 heading into the final day of the Santa-rally period.
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"This was a one-off event with Iran and it doesn't appear to be a major warning sign for markets yet," says Ryan Detrick, senior market strategist at LPL Financial.
When stocks fall in that period, the decline tends to signal a bear market or a sizable decline is coming, according to The Stock Trader’s Almanac. Bear markets followed after the rally failed to materialize in 1999 and 2007.
Still, the stock market may be due for a pause in January.
Stocks are showing signs of being inflated in price, analysts say. The 14-day relative strength index, a widely watched stock market barometer, climbed above 70 recently, a reading that tends to signal that stocks are vulnerable to a decline.
“Given the recent rally, stocks could pull back in January,” says Keith Buchanan, portfolio manager at GLOBALT Investments.
Another catalyst for stocks, analysts say, is fourth-quarter earnings season, which kicks off later this month. Corporate profits proved to be more resilient than expected in the third quarter, which helped ease fears about trade tensions and economic growth.
The earnings outlook, however, hasn't improved much recently, according to Bank of America Global Research.
To be sure, stocks are sitting pretty heading into 2020. Since 1945, when the S&P 500 index has risen at least 20% in a year, it gained an average 10% the following year and was higher nearly 80% of the time, according to Sam Stovall, chief investment strategist at financial-research company CFRA.
“Long-term investors need to remember that it’s their time in the market that’s most important, not timing the market,” says Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers.