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WEEK AHEAD: DECEMBER 21

Short Description

We are nearing the end of the year and for stock markets that means a possible Santa rally. I explain what the Santa rally is and give my take on whether we can expect one this year. I also rundown highlights from the economic calendar. Thanks! Rich

Video Script

Time for the Santa rally in stocks? -THE WEEK AHEAD (Dec 21-25, 2020)


Hi everyone, I’m previewing the week ahead in markets - the penultimate week of 2020. It’s about now that we associate with the beginning of the so-called Santa rally – a tendency to see a year-end rise in stock markets. I’ll discuss the chances of a Santa rally this year while also running down this week’s economic calendar.

Before we get into markets - I thought I’d start by debunking a classic myth that gets told every year. You may have heard that Coca-Cola designed the modern Santa Claus as part of an advertising campaign in the 1930s. Coca-Cola did start using Santa in advertising in 1933 BUT Santa was almost always depicted in red from the early 19th century and most of his classic characteristics were created by cartoonist Thomas Nast in the 1870s.

So if you are armed with a new fact for the dinner table this holiday season, please click the like button -it really helps us spread the word about these videos!

As is usually the case – the Christmas week means a thinner economic calendar. We start the week with the People’s Bank of China rate decision then UK CBI industrial trends on Monday. There is UK and US Q3 GDP data as well as US existing home sales data on Tuesday. Wednesday sees US durable goods data released. Thursday and Friday are Christmas Eve and Christmas Day respectively so many stock and bond markets will be closed or working with reduced holiday hours but Japanese retail sales data is squeezed in between.

Firstly let’s define the Santa rally. The idea was first put forward by Yale Hirsch in the 1973 Stock Trader’s Almanac. Hirsch said that the stock market tended to rise in the last five days of the year and the first two days of the New Year. So that would be this Thursday through to Tuesday January 5th. The definition is a bit broader these days – just a tendency for stocks to rise in December and especially in the last two weeks. Here you can see in this chart that in the years 2008 through 2018, the S&P 500 gained in the period Hirsch specified for 9 out of 11 years. We don’t know why it happens but it’s likely due to investors shuffling around their portfolios at the end of the year.

So will it happen this year? Of course we can’t know for sure. One reason to be wary is the massive gains we saw in November this year. In fact the S&P 500 had its best November ever – and the Dow Jones had its best month since 1987. So maybe November borrowed some gains from December this year. The S&P 500 made fresh all-time highs last week but actually December has been more sideways so far in stock market, leaving open the chance of a late gain in the month. 

As far as the news to watch to see which way we go in the final days of December this year, the main things from my point of view will be the chance for a US stimulus bill and covid-19 vaccine distribution. If no stimulus is agreed and is there is a problem with vaccine distribution- especially with rising virus cases- we could have difficulty. However a stimulus deal getting agreed would be a positive surprise and good news around vaccines might be enough to see this seasonal tendency come true again this year. 

Right thanks everyone, good luck trading this week and make sure to subscribe to our channel so you don’t miss the next video.
 

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