Christmas is just around the corner, but Wall Street isn’t feeling festive. Both the S&P 500 and Nasdaq Composite are down this month, breaking the usual holiday cheer for stocks. Historically, December tends to be a strong month, often averaging a gain of over 1%, according to the Stock Trader’s Almanac. This year, however, the S&P 500 is on track to end a seven-month winning streak and is struggling to stay above its 50-day moving average.
“Concerns are holding back an end-of-year rally,” says Justin Bergner, a portfolio manager at Gabelli Funds. He suggests we might see a flat finish to the year instead of the usual excitement.
Market Challenges
Several issues are weighing on the stock market. One big factor is the bond market. A tightening yield curve, which is happening not just in the U.S. but globally, could pull money away from stocks. For instance, long-dated Japanese bond yields have nearly doubled this year, attracting investor interest.
Investors are also wary about the possibility of Kevin Hassett becoming the new chair of the Federal Reserve. His approach could lead to aggressive rate cuts, raising concerns about inflation and bond yields.
Bergner emphasizes the importance of balanced yields: “We need market conditions that are neither too hot nor too cold.” Currently, things seem stable, but uncertainty remains.
Other Worries
There’s also the Supreme Court’s upcoming decision on tariffs, which could shake things up if the levies are ruled illegal. And fears over an overvalued market persist, especially concerning inflated valuations in the AI sector.
As it stands, the Dow Jones Industrial Average is slightly up by 0.9%, while the Nasdaq Composite is lagging behind. There’s talk of investors shifting their focus to sectors like industrials and financials, which might benefit in the coming year. “I see a shift towards value stocks from growth,” Bergner notes.
Hopes for a Santa Claus Rally
Investors are still holding out hope for a “Santa Claus rally.” This term, first coined by Yale Hirsch in 1972, refers to a traditional year-end rally that usually occurs during the final five trading days of the year and the first two of the next. Historically, this rally averages a 1.3% gain in just those seven days.
However, if recent trends continue, we might not see much of a holiday boost this year.
Looking Ahead
The week ahead has some important economic data set to be released, including real GDP and industrial production figures. These could influence market sentiment as we move closer to the new year.
For up-to-date economic insights, check out reputable sources like the Federal Reserve or CNBC.
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