With Thanksgiving now in the rearview mirror – and Black Friday and Cyber Monday all wrapped up with a bow – we are charging into the holiday season with gusto. As a matter of fact, after November’s remarkable stock market performance, investors are now buzzing with excitement.
That is, last month, the S&P 500 delivered its strongest monthly gain of 2024, surging nearly 6% and reigniting bullish optimism among investors.
Naturally, after such outperformance, the question on many folks’ minds remains: Can this red-hot market rally continue throughout the holiday season?
We think so – for a few big reasons.
1: Bullish Seasonality Trends Suggest a Santa Rally Ahead
First of all, stocks tend to do well this time of year. Let’s call it holiday cheer. Indeed, since 1950, the stock market has risen about 80% of the time between Thanksgiving and the New Year.
And for the past five years, the market rallied from Dec. 2 into the end of the year all but once. It rose about 4% during that stretch in 2019, 2021, and 2023. In 2020, it rose about 2% over that same period. The only time in the past five years that the market didn’t rally through the holidays was in 2022… when the stock market was fighting a brutal bear market.
Seasonality is a formidable ally this time of year.
2: Inflation Keeps Sliding Lower
Additionally, inflation is finally cooling once again.
Reinflation fears have, in our view, been the one obstacle holding the market back in recent weeks – and rightfully so. For a while there, realtime measures of inflation had been reheating. Truflation’s U.S. Inflation Index, for example, popped from 1% in early September to almost 3% in mid-November.
But it has since cooled, with that index sliding to 2.7% over the past two weeks. This seems to suggest that the recent bout of reinflation has at least temporarily stalled.
That should help to ease investors’ fears – and push stocks higher.
3: A Dovish Fed Is Driving the Sleigh
Three, the Federal Reserve will likely play the part of Santa, not the Grinch, later this month.
That is, the Fed will have its December meeting in two weeks. And it is widely expected to cut interest rates by 25 basis points at that upcoming meeting. But more important than the actual rate-cut decision will be Fed Board Chair Jerome Powell’s tone in the post-meeting press conference.
If he sounds hawkish and signals that the central bank may pause its rate cuts, that could spoil the stock market’s holiday rally. If he sounds dovish and signals that the cuts will keep coming, that could further support the holiday rally.
We think we’re due for the latter. According to Bloomberg’s Fed Sentiment Natural Language Processing Model, the central bank’s commentary shifted considerably more hawkish from mid-September to mid-November, apropos with growing reinflation risks. But as those fears cooled over the past week, Fed sentiment has turned slightly more dovish.
We expect reinflation fears to keep cooling. And as such, we also expect the Fed to respond with a continued dovish tilt.
That should help Powell to be a Santa for Wall Street this year.
4: Robust Consumer Spending on Deck
And last but not least, it looks like this holiday shopping season will be quite a strong one.
According to data from Mastercard (MA), Adobe Analytics, and Salesforce (CRM), the 2024 holiday shopping season is off to a record start. Roughly speaking, overall holiday sales on Black Friday/Cyber Monday weekend rose about 3- to 4% from last year, with online sales rising about 8- to 10%.
Those are very strong growth rates. Indeed, on the online front, this year’s sales growth rate of over 8% is tracking to be the best since Covid.
In other words, by some metrics, we’re looking at potentially the best holiday shopping season since Covid emerged more than four years ago.
The Final Word on the Upcoming Santa Rally
So, what does all this mean for investors as we cruise into the holiday home stretch? Well, it seems the stars are aligning for a pretty sweet market finale to 2024.
We’re looking at a potentially perfect storm of good news: consumers are still spending, inflation is taking a chill pill, and the Fed looks like it might play nice with Wall Street.
The pandemic-era economic rollercoaster seems to be smoothing out, and investors have plenty of reasons to feel a bit more optimistic. Of course, the market can always throw a curveball. But right now, things are looking bright.
Now, keep your eyes on that upcoming Fed meeting. Jerome Powell’s words could be the holiday gift – or lump of coal – that sets the tone for the rest of the year.
Though, for now, it looks like we might just be in for a merry little market run.
Want to know which stocks we think are among the best to buy for this Santa rally?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.