The stock markets are experiencing a noticeable upswing heading toward the end of the year, with U.S. and Canadian markets alike surging, largely driven by optimism surrounding tech stocks and resource sector performance. On Monday, December 23, 2024, the U.S. benchmarks found themselves on solid footing, buoyed by gains from chipmakers, even as investors anticipated the much-discussed 'Santa Claus rally'—a term describing the phenomenon where stocks tend to rise during the last trading week of the year and the first two trading days of the new year.
According to market reports, the NYSE saw the Nasdaq Composite increase nearly 1% thanks to noteworthy advances among tech stocks. Nvidia led the gains with its shares rising 3% by the market's close, followed closely by Broadcom and Advanced Micro Devices, which saw increases of 5% and 4%, respectively. This surge marked what could be termed as 'AI-driven momentum' as described by Louis Navellier, Chief Investment Officer at Navellier & Associates, who remarked, "It's been an AI-driven year, and it appears that's how it is headed toward year-end."
The concept of the 'Santa Claus rally' is not just superstition; it's built on statistical evidence. Sam Stovall, Chief Investment Strategist at CFRA Research, pointed out, "A positive Santa Claus Rally has preceded a 10.4% average annual gain for the S&P 500 since WWII." This historical trend adds weight to the collective optimism as festive cheer seems to be influencing trading behavior as well.
Meanwhile, the U.S. was not alone, as Canada's main stock index, the S&P/TSX composite, also reported positive figures. It climbed 149.50 points, or 0.6%, closing at 24,748.98. Brandon Michael, Senior Investment Analyst at ABC Funds, characterized it as the beginnings of the 'Santa Claus rally,' stating, "We're seeing the beginnings of a 'Santa Claus rally' as stocks continue to show strong momentum."
With tech stocks leading the charge, it's worth noting how the Canadian market is measuring up against its American counterpart. The TSX has seen an overall gain of 18.1% throughout the year, albeit trailing behind the S&P 500’s roughly 25% increase. This discrepancy can partially be attributed to the Canadian market's limited exposure to high-growth sectors like AI and robotics, which have been significant drivers of growth elsewhere.
Despite these positive trends, challenges remain on the horizon. The Canadian economy is currently under strain due to political uncertainties and the Canadian dollar facing downward pressure, with discussions around possible aggressive rate cuts becoming more frequent.
Global reactions to various economic signals continued to shape market sentiments. For example, U.S. consumer confidence recently dipped to levels close to recession territory, raising eyebrows among investors and economists alike. This backdrop, characterized by unsettling signals from Russia's economy and fluctuated inflation data, painted a complex picture.
Nonetheless, the tech rally has seemingly overshadowed potential concerns, with traders appreciating the jumps made by several major players within the sector. Steve Sosnick from Interactive Brokers reflected on the day's trading, saying, "Stocks didn't really have any direction... then we got this tech rally..."
There's also historical precedent for heightened volatility during this period. The last five trading days of the year combined with the first two trading days of the next year have reported average gains of 1.3% for the S&P 500—indicative of the market's propensity to close out strong. The fact remains, though, elevated Treasury bond yields continue to raise caution flags for investors aiming to navigate these potentially turbulent waters.
Another layer to this narrative involves the import of political shifts, with Donald Trump’s return to the White House looming. Some market analysts express concerns about possible inflationary pressures stemming from promises of tax cuts and regulatory changes.
Despite these uncertainties, the current rally provides some solace. Coupled with reassuring economic indicators, the Santa Claus rally is likely to have investors holding onto their positions, wary of tax-loss selling as the year wraps up.
It's clear this festive season, much is at stake as the markets seek to close out the year on positive note. Rising stocks, fueled by hope, optimism, and solid market sentiments, paint bright prospects for the New Year. Investors will be watching closely as they step gingerly toward the trading opportunities presented at the dawn of 2025.
