The “Santa Claus” rally could drive stocks higher even after an “incredible” year

This year was a historic year by almost all standards – and that includes the stock exchange. For those like LPL’s Ryan Detrick, the wild moves in the market for 2020 can be summed up in one word: “Unbelievable,” he says capital.

“This will be the first year in history that stocks have fallen 30% at any point and managed to land higher,” says Detrick. “That sums up a lot for me – we’ve never seen a tour like 2020.”

After a record-breaking slump in the bear market in March, stocks have rallied fully and are currently trading at all-time highs, up 14% for the year at close of trading on Tuesday.

While stocks have been trading sideways lately, December is usually a strong month for investors, and some strategists see reason to believe that stocks could end the year on a high note.

A rally at the end of December?

However, historical patterns don’t always hold up on the market (that’s about it) temporarily for 2020 also).

However, LPL’s Detrick points out that the second half of December (since 1950 for the S&P 500) has historically been rather strong for investors.

He says December was up about 1.5% on average, but “almost all” gains tend to start rising from December 15th.

And although 2020 was unpredictable to say the least: “We don’t want to bet against it this year,” he says. This is because with the spread of a vaccine a Stimulus bill likely passedDetrick believes that volume and volatility should be low as traders and investors start taking vacations over the holidays. “That could lead to a slightly higher movement towards the end of the year, this historic Santa Claus rally,” he says.

Others like Liz Schw Sonders, Chief Investment Strategist at Charles Schwab, state that there are two main risks through 2021: First, that “things are better than expected”, which means “the possibility of growth overheating, possibly higher.” Inflation “and put the Fed on the question,” Do you have to pull out of this simple policy? “Says Sonders capital. “The other extreme would be the opposite: we’ve made fairly positive assumptions, and what if several or a few of them go wrong?”

Prepare to retreat

Indeed, Some on Wall Street are already nervous that the markets are overheated and a A sale – or at least a break – could be on the cards.

A big issue that many strategists noticed this year was that eerie resemblance to the 2009 bull market. (See chart on Schwab Center for Financial Research below.) And according to some strategists, this map could have some turmoil ahead.

“Nobody knows if the roadmap will continue through 2021, but if it does, the second half of January looks a little worrying,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab wrote in a recent tweet.

But even if 2021 doesn’t follow the 2009-10 map any further, LPL’s Detrick believes that some of the “record runs” of the past few months in the market could “steal a little, if you will, of some profits next year,” he says, pointing to ratings as one of the “biggest problems”. He believes a 10% correction in Q1 2021 would make sense and suggests that investors consider realigning with moves up or down.

Meanwhile, Schwab’s Sonders believes investors can learn a pretty big lesson from 2020 through next year: “I don’t think the market should be based on the assumption that the Fed will always have the back of the market,” says she .

“If we get the next correction – and we’re going to get one, I don’t know when – if it doesn’t jeopardize the stability of the financial systems, if it isn’t crisis-related, we can’t rely on it – Powell Put called that the Fed will simply will always be there, ”says Sonders. “We have to be aware of that in 2021.”

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