By Joyce Yu
Philadelphia, PA–The traditional period for the so-called “Santa rally” starts today and runs through the close on Jan. 3, according to “Stock Trader’s Almanac”. The seasonal rally, which has been used by some strategiests as an indicator of market performance in the next year, didn’t show up only six times in the past 24 years, and each was a harbinger of weakness.
Jeffrey Hirsch, editor-in-chief of the almanac, says the phrase used to explain the year-end phenomena has proven to be true, according to a CNBC report. ” The last six times that Santa didn’t show up, three were followed by flat years: 1994, 2005 and 2015. Two were nasty bear markets in 2000 and 2008, and a mild bear … in January 2016.”
“It’s a period of time where a lot of participants are away, and the smart money comes in and picks up values. It’s a time of year for positive vibrations and bullish buying, and if it doesn’t happen you get the first sign that things are not so rosy.”
Year to date, the Dow, S&P 500 and Nasdaq have all gained 20% to 30%, and each has hit a record high this week with the Dow approaching the 25,000-point milestone. However, the on the first day of the so-called “Santa rally”, European markets dipped in early trading. Spain’s benchmark IBEX 35 led the way, losing roughly 1% as Investors are nervous about the future of the Spanish region of Catalonia, where pro-independence parties won during an election on Thursday.
European stocks exposed to Spain’s economy were hit. This includes Telecoms firm Telefonica, real estate investment trust Merlin Properties and airport operator AENA. “The environment remains difficult for Catalonia’s economy and investments,” said Carsten Hesse, economist at Berenberg, told the Reuters.
“You always have to keep political risk in mind but it’s the underlying fundamentals that are driving European equities,” Christopher Peel, chief investment officer at Tavistock Wealth, shared with the Reuters. “The euro zone and Spanish economies are recovering, interest rates are going to stay low, and most investors are only looking at those fundamentals.”
Emerging stocks, on the other hand, moved higher on Friday and were set for the biggest weekly rise since October with Asian stocks rose further. Credit Agricole head of emerging market research Sebastien Barbe told clients he expected the emerging markets carry trade to continue.
“We believe emerging markets’ economic growth should remain relatively robust in 2018, comparable to what it has been in 2017,” he said. “We see emerging market currencies appreciating slightly versus the dollar on average in 2018, as the increase in U.S. yields should slow drastically in 2018 compared with fourth quarter 2017.”