Will the Santa Claus Rally Continue? 🎅

In this analysis by Chuck Saletta, a respected contributor at Motley Fool, the spotlight is on Santa Claus rallies.

• It’s typically a low-volume trading time on Wall Street, when many professional traders tend to take vacations. To the extent professional traders are less optimistic than retail investors, their absence often lets the market drift higher.
• Many people get year-end bonuses, which can give them extra money to invest around this time of year.
• Mutual funds usually distribute their gains and dividends in December, which also can give people a bit of extra money to invest near the end of the year
• Fund managers may engage in a practice known as “window dressing” this time of year. When they do that, they over-weight in the best performing stocks they can get their hands on to make it look like they are participating in a winning trend as they report their year-end results.  That can move already high-flying stocks even higher.
• People often engage in “tax loss harvesting” in the early part of December as they try to manage their investing-related tax bills for the year. As that winds down near the end of the month, it removes selling pressure, which helps stock prices rise.

Regardless of the cause of Santa Claus rallies, they’re certainly something many investors hope happen every year.

Who might benefit if Santa does bring a market rally?
Given the suspected drivers of Santa Claus rallies, it may make sense to look for some of the biggest technology companies to be beneficiaries of any late-year lifts in 2023. Those companies tend to be big players in market index funds, where a lot of retail investors put their money. They also tend to have been some of the biggest winners throughout much of the year, which makes them popular “window dressing” candidates for professional fund managers.

Microsoft (NASDAQ: MSFT) is one such company to keep an eye on. Its partnership with Open AI, the company behind ChatGPT, makes it one of the strongest players in artificial intelligence. Artificial Intelligence has been one of the biggest market drivers of the year, and that particular innovation is only now starting to get widely adopted. 



Amazon.com (NASDAQ: AMZN) is another. Package delivery company FedEx (NYSE: FDX) recently warned of softer holiday shipments leading to lighter expected revenue for the year. While some of that may be true, the reality is that Amazon.com has also drastically enhanced its own delivery services throughout 2023.  We might end up finding out that FedEx’s weakness may be at least partially due to Amazon.com being that much more self-sufficient in logistics and able to ship other freight as well.


Will Santa show up to Wall Street this year?
Of course, there are never any guarantees in the stock market, and there’s a case to be made that Santa Claus came early this year, in the form of US Federal Reserve Chairman Jerome Powell. In his December announcement, Powell held interest rates steady and pivoted his commentary towards potential future rate cuts. That has led to an already impressive December market rally for US stocks.

Only time will tell whether that rally has played itself out or whether it will continue into early 2024. Either way, it’s always extra risky to make investments based on short term market trends. As a result, it makes sense to look at the businesses behind the stocks to see if those companies will still be worth owning once any near-term rally ends. 

At the time of publication, Chuck Saletta owned shares of Microsoft.

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Sources: Yahoo Finance, Forex, Investopedia, UMB, Nasdaq, CNBC, Supply Chain Live, Bloomberg

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