Check… Check… Check… All Signs Go for Santa Claus Rally!
The S&P 500 is already up 26% this year…
But one popular market phenomenon is pointing to even more profits ahead!
I’m talking about the Santa Claus rally — a phenomenon where stock prices rise during the last five trading days of December and the first two trading days in January.
It’s occurred 76% of the time since 1950. And this year is looking like another prime candidate.
So today, I want to explain why all systems are GO for a year-end rally, and why you’ll want to stay invested in this stock market even after it’s over…
Let’s get to it!
Trade War Phase One Deal… Check
Late last week, officials from both the U.S. and China confirmed that a “phase one” trade deal had been reached.
Although details are scarce, here is what we do know:
- The 15% tariffs that were scheduled to go into effect on $160 billion of Chinese goods on Sunday have been called off.
- The U.S. has decreased previous tariffs on $120 billion of Chinese goods to 7.5% from 15%.
- And China has agreed to remove tariffs on some U.S. goods, as well as buy more U.S. agricultural products.
Now, I know this isn’t the comprehensive deal we’ve been waiting for…
But what’s important is that it does remove at least some of the uncertainty surrounding trade war tensions. And it shows that both sides are finally willing to come together in order to end the trade war once and for all.
For proof that the market approved of this step, look no further than the fact that the market popped on the news last week, and hit another all-time high again today!
Accommodative Monetary Policy… Check
Ever since the financial crisis one decade ago, the U.S. Federal Reserve has kept short-term interest rates historically low.
Manipulating these rates are one of the Fed’s “tools” it uses to spur economic growth.
For consumers, these low interest rates make financing big-ticket items like homes, cars, appliances and electronics more affordable.
And for businesses, it allows management teams to invest in new machinery, vehicles, warehouses, and ultimately hire more workers.
This is good news for our stock market as it encourages both businesses and consumers to spend money at some of our favorite publicly traded companies.
And don’t expect these “easy money” policies to stop anytime soon!
Last week, the Fed decided to keep rates at their current level and announced that they don’t expect to raise rates at all in 2020.
Which means this accommodative monetary policy won’t just last through the Santa Claus rally… But should even push stocks higher throughout the next year!
Strong Retail Sales Figures… Check
Remember, nearly 70% of U.S. economic activity is driven by consumers.
If consumers are earning decent wages and are confident in their ability to do so in the future, they’ll be more willing to spend money.
At no time is this willingness to spend more apparent than during the holidays. And so far, the spending is historically strong!
Thanksgiving weekend saw the highest number of total shoppers on record, as well as the highest average spending amount per shopper — 189.6 million and $361.90, respectively.
But the spending isn’t just limited to Black Friday and Cyber Monday…
A recent study by eMarketer just predicted total U.S. retail sales during the holiday season will climb to $1.008 trillion! …Trillion!
Couple this historically strong holiday shopping season with the fact that interest rates are still historically low and traction is gaining on the trade war front, and it’s safe to say that all signs are a GO for a year-end Santa Claus rally.
Now let’s get to the “Must Know” stories to start your week…
Must Know Stories for Monday, December 16th
Trade War Phase One… Check — Late last week, officials from both the U.S. and China confirmed that a “phase one” trade deal had been reached. Although details are scarce, here is what we do know: the 15% tariffs that were scheduled to go into effect on $160 billion of Chinese goods on Sunday have been called off. The U.S. has decreased previous tariffs on $120 billion of Chinese goods to 7.5% from 15%. And China has agreed to remove tariffs on some U.S. goods and buy more U.S. agricultural products. Phase two talks are reported to begin ASAP.
Green Activist Targets “Big Oil” — Dutch activist group Follow This has filed requests for ExxonMobil Corp. and Chevron Corp. to hold shareholder votes at their annual meetings, in hopes to pressure the energy giants to align their businesses with the Paris Climate Accord. More specifically, the group is pressing the oil companies to publish “targets” that explain the progress they’re making (and expect to make) towards becoming more environmentally friendly businesses.
Earnings on Deck — On Tuesday, Jabil, Cintas and FedEx report earnings. On Wednesday, Paychex, Toro, General Mills, Herman Miller and Micron report earnings. On Thursday, Rite Aid, Darden Restaurants, Conagra, Factset and Nike report earnings. And on Friday, CarMax, Blackberry and Winnebago report earnings.
Consumer Check Up — On Friday, the Commerce Department will release November consumer spending data. This could offer an early assessment of the holiday spending season. Analysts expect a 0.4% increase over the previous month. Remember, reports like this are important for keeping a pulse on the U.S. consumer, because a strong consumer translates into a strong economy.
That’s all from me today. Have a great week and get ready for the Santa Claus rally!