Market Beat: The Santa Claus Rally

Ken Roberts
Market Beat
Ken Roberts

The stock market rally is continuing. The term for the tendency of the market to perform well in the last few weeks of the year is known as a, “Santa Claus Rally.”

Year to date the S&P 500 is up almost 30% and the NASDAQ’s gain is about 35%. I’ll post the final numbers after the year end.

Foreign markets have performed pretty well, too, The EAFE, which stands for Europe, Asia and the Far East is up almost 18% and the emerging markets have gained about 15%.

Technology has been the best performing sector so far this year, the XLK, which is the technology ETF has posted a gain over 45%. The worst performing sector has been Energy, the Energy ETF, XLE is only up about 7%.

Looking ahead, holiday season retail sales and fourth quarter earnings reports will probably drive the market in the short term. According to data from FactSet, Wall Street analysts are the most bullish on the Energy sector when the fourth quarter earnings start getting reported in mid-January. They are also bullish on the Health Care and Communications Services sectors.

The outlook for corporate earnings in 2020 is also above average. Year over year corporate earnings are expected to grow by 9.6% throughout 2020, which is above the ten year average of 9.1%. All eleven of the S&P sectors are expected to report earnings growth, led by the Energy, Industrials and Materials sectors.

Earnings for the Energy sector are expected to grow by 21.4%, but the price of crude oil is not forecast to rise much, which will be good news when we go to the gas pump to fill up, if the forecasts are accurate and oil does not rise much in price. The average forecast price for a barrel of oil for next year is $56.02. The average price year to date has been $56.92.

The economy overall is still chugging along pretty well overall. The Fed has been cutting interest rates and does not anticipate any rate increases in 2020. There is plenty of liquidity as the Fed has been doing another round of QE or quantitative easing due to conditions in the Repo market. Housing starts and the Empire State Manufacturing Index both rose in November. The GDP grew by 2.1% in the third quarter, which is slow by still indicates the economy is growing.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Get more information at 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.

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