“I don’t want a lot for Christmas, there’s just one thing I need … I don’t care about the presents underneath the Christmas tree…” so the song goes by Mariah Carey.
Admittedly, Carey’s “dear Santa” version is much more convincing than any letter I’ve ever written to St. Nick. But as we’re now heading into the final week of the year, and with all three major averages up near record territory, there is a collective sigh (a plea, even) among investors, caroling: “All I want for Christmas is a sustained market rally.” The reason is simple: for a lot of people, this current market rally wasn’t supposed to happen.
Just over the past thirty days, the three closely-watched indexes have gained an average of 5%, with all eleven S&P 500 sectors climbing, prompting the term “everything rally.” This was unexpected considering that investors spent most of 2023 fretting about inflation, interest rates and the “looming recession” that was always around the corner. Now, with just one more week remaining in the last quarter of the year, investors are snapping up everything from stocks, bonds, crypto and gold.
As of Friday’s close at 37,385.97, the Dow Jones Industrial Average is up 13% year to date and comfortably higher than 37,000 which the blue-chip index first surpassed for the first time in history last week. Climbing more than 15% from its Oct. 26 low, the S&P 500 index is up 24% year to date and has made a new 52-week high. This year’s biggest winner, meanwhile, is the tech-heavy Nasdaq Composite index which has surged 43% in 2023, closing at 14,992.97.
As the three major averages just notched their eighth consecutive positive week, there is a large segment of the market that is stunned by this recovery. However, if you’ve been a follower of my advice throughout the year, I offered many reasons to believe a market rally was not only imminent but also sustainable. But with Christmas here, a “Santa Rally,” one that extends into the first quarter of 2024, is what investors are now betting on.
In a recent weekly survey by the American Association of Individual Investors, roughly 53% of investors expect that stocks will rise over the next six months. That’s an increase of 1.6 percentage points in bullish optimism compared from the week prior. And here’s the thing: when these same investors were asked this questions at the start of November, just 24% of them were bullish, while some 50% believed that stocks would decline in the next six months.
What has changed? Well, quite a bit. The Federal Open Market Committee (FOMC) has pivoted from its hawkish stance towards monetary policy, indicating they are not only done with their interest rate hiking cycle, the Fed now envisions a reduction of 75 basis points in 2024. In other words, after eleven rate hikes over the past two years, there is now potentially three rate cuts on the table next year. While inflation is not yet at the Fed’s 2% target, the latest data provide strong arguments that rate cuts have worked.
With that in mind, it’s more than likely that the “Magnificent Seven” mega-cap stocks, will thrive (which I wrote about in more detail here). Of course, I’m referring to mega-cap tech giants consisting of Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). These mega-cap tech giants, which are enjoying growth tailwinds that are still in the early stages, will continue to be money-makers for investors who own then today.
If you’re on the sidelines, still waiting for the best market deals, you might be waiting a long time. It’s the season of giving (and buying). As such, I still see buying opportunities in the market rally. And I’ve always believed stocks not only made greats stocking stuffers, a few of them belong underneath every Christmas tree.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Image and article originally from www.nasdaq.com. Read the original article here.