NEW YORK (Reuters) – Concerns over coronavirus pandemic and the upcoming U.S. Senate overhaul in Georgia are shattering the outlook for what has been a strong season for equality .
Stocks have tended to perform well in the last five trading days of December, and the first two of January, a surprise known as the Santa Claus rally that has raised equities in 55 a. out of 74 years since 1945, according to CFRA Research. This year, the period starts on December 24th.
The average Santa Claus rally has boosted the S&P 500 by 1.3% since 1969, according to the Stock Trader’s Almanac. Overall, a year with the Santa Claus rally is followed by an average annual gain of 9.7% in the S&P 500 next year, compared to an average gain of 9% in the S&P 500 in each year, according to CFRA Research.
But despite the S&P rally in the quarter and its gain to date of around 14%, this year’s Santa Claus rally is far from over, investors said.
Concerns about a new variant of the coronavirus and weak economic readings have put pressure on stocks in recent days, with the S&P 500 down 0.7% since hitting highs on December 17 as some investors lock in benefits.
U.S. consumer confidence fell for a second straight month in December, data showed Tuesday, revealing a wave of coronavirus that has spurred industry restrictions despite vaccine releases.
Just later there is a pair of U.S. Senate races on Jan. 5 that could control the room for Democrats, which could pave the way for lawmakers to move forward. on some of the recommendations of President Joe Biden that investors have seen as market incompatibility. , including the raising of taxes and the reversal of Trump’s deregulation.
“The market is on autopilot right now as we approach the end of the year, but in the short term we are vulnerable as we get closer to Georgia’s election runoff,” said Sam Stovall, chief investment strategy at CFRA Research. “If it looks like we’ll get two Democrats … that might be enough to make investors rethink how bullish they want to be.”
More than 1.1 million Georgians have already cast their votes for Jan contests. 5, a level of participation that is at a distance to compete with the presidential contest in November in which Biden, a Democrat, won 16 state Electoral College votes with a thin razor on the edge the path to the defeat of Republican President Donald Trump.
If Democratic candidates Raphael Warnock and Jon Ossoff get the upper hand in the running water, the U.S. Senate will split 50-50 between Democrats and Republicans, leaving Vice President Kamala Harris as the break vote.
Overall, the broader stock market has been focusing on the stimulus deal here with Congress Monday and the spread of coronavirus vaccines rather than increasing political risk, said Craig Johnson, market strategist technician at Piper Sandler.
“We believe that these catalysts have been largely reduced in the large market collection,” he said. “The risk of uncertainty over how quickly they translate into meaningful economic development remains uncomfortably high,” he said, although he maintained the 2021 end-of-year price target for the S&P 500 of 4,225 , about 14% above the current index price.
This year’s rally in the S&P 500 has priced its forward price to job valuation to 23.1, near the highest level in history behind the government’s extensive incentive programs and unparalleled financial support from the Federal Reserve.
These reserves have left the market at a price of perfection, giving it a little more room to run without another catapult, said Randy Frederick, vice president of trade and derivatives with the Schwab Center for Financial Research.
“We are a little late to withdrawing in the short term and investors are looking forward to a race or two that could mean a big change in personal and corporate tax rates,” he said. .
If the Democratic candidates appear to be ready to win both seats at the Georgia Senate, “things could turn very bitter even though the long – term outlook looks good,” Frederick said.
Reporting by David Randall in New York; Edited by Ira Iosebashvili and Matthew Lewis