Can the great S&P 500 surge of 2013 continue this coming week and project markets toward an end-of-year “Santa Clause Rally” that would indicate another good year in 2014?
The S&P is up more than 25% for 2013 and is on target for its best year since 1998 – as long as there are no surprises as we enter the last month of the year. Can portfolio managers lock in the gains and bring them home for investors?
Well, as traders and fund managers get back to business after the Thanksgiving holidays, they will have to digest a huge diet of economic data in the coming week that may give some clues to the direction of stocks through the New Year.
The U.S. Federal Reserve is still looking for signs of a strong enough economic recovery so it can start to reduce its $85-billion-a-month bond buying stimulus program that has boosted markets and kept interest rates unusually low for so long.
This week brings several reads on the U.S. employment situation — private-sector payroll numbers on Wednesday, weekly U.S. jobless claims on Thursday, and the crucial nonfarm payrolls for November on Friday.
Investors will watch results from the Thanksgiving season retail sales, which can be a guide to the longer holiday shopping season just ahead, and Dollar General DG -0.71% will announce earnings.
Other economic news expected in the coming week includes U.S. domestic car and truck sales, U.S. factory orders, consumer sentiment numbers, and data from the Institute for Supply Management on the U.S. manufacturing and services sectors.
This week also sees details from the so-called Beige Book made public. In this report, published eight times a year, each local Federal Reserve Bank gathers anecdotal information on current economic conditions in its district.
One the corporate news front, one big gauge of market sentiment may come this week if, as anticipated, Blackstone Group files with regulators the new terms for its expected Initial Public Offering of hotel operator Hilton Worldwide Holdings.
On the international front, U.S. Vice President Joe Biden will visit Asia as tensions mount in that region, and Brazil will announce Gross Domestic Product details amid a slew of international economic data and central banker activity.
The Organization of Petroleum Exporting Countries (OPEC) will decide if it is to make any changes to crude oil production.
So there is much for markets to digest in one of the year’s busiest weeks for economic data.
Most market participants are confident the stock rally will continue right through to the Santa Claus Rally, but in this era of high-frequency trading, when stocks are often held for only a few seconds, things can change very quickly.
If this week’s data is surprisingly strong, the Fed may reduce its stimulus sooner than expected, and markets could suffer. Ironic.
The Santa Claus Rally is described in the Stock Trader’s Almanac as “the propensity for the S&P to rally the last five trading days of December and the first two of January an average of 1.5% since 1950.”
On the other hand, the Almanac also warns that a lack of a Santa Clause Rally has often been an early indicator “of tough times to come,” citing 2000 and 2008. “A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history.”
And while a Santa Rally is usually a sign of a good year ahead, the Almanac does caution: “There have been several instances in which a positive SCR preceded bad years or markets, so some caution is in order. This was the case in 2011 although the market did manage to recoup most of its losses to finish the year flat.”
The age-old Almanac saying is that “If Santa Claus should fail to call, bears may come to Broad and Wall.”
The stock rally of 2013 is surely too strong for that to happen this time around. No?
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