The Santa Claus rally is a seasonal anomaly that describes a rise in stock prices in December, generally over the final week of trading prior to the new year.
The benchmark S&P 500s average gain during the last five days of December and the first two of January is about 1.5% since 1950, according to Stock Traders Almanac. The equities market has gone up in December about 80% of the time for the past 20 years.
Although the S&P 500 is up just about 1% so far this month, the index is up about 27% for the year and is on track for its biggest gain since 1997.
Its been a strong year, and I wouldnt be surprised if investors closed out their year today, said Doug Foreman, co-chief investment officer of Kayne Anderson Rudnick Investment Management. There isnt much room or news to move higher from here until next year.
Stocks rallied sharply last week, with the Dow and the S&P 500 closing at records on Friday, following the Feds mid-week announcement it will reduce its $85-billion monthly bond purchases by $10 billion.
For the week, the Dow gained 3.1%, the S&P 500 was up 2.5% and the Nasdaq added 2.6%.
Trading volume this week was also below average as many investors had already locked in their gains for the year ahead of the holidays.
Theres a lot of transparency in the market, but most of the noise has already been made. We should expect to continue seeing light volume and not much selling as we go into next week, said Mark Martiak, senior wealth strategist Premier Wealth/First Allied Securities in New York.
Were selling our winners and looking to see what sectors could be the ones to be in next year. I like cyclical and industrials. I want to see the news post-holiday season before I start to recommend defensive names.
With Christmas and New Years holidays in the middle of the week, trading volume is likely to be lower than previous years. The New York Stock Exchange will close early at 1 pm eastern time on Tuesday and will remain closed for Christmas day.
Analysts say next week will be a start of investors finally shifting focus to the fundamentals of the economy, like economic reports and corporate earnings.
With the Fed out of the way now, the market is going to move back to making more rational decisions
and focus on what really matters in the economy, said Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management.
Fourth-quarter earnings will start coming in January and the markets full focus will be on those numbers and outlooks.
Economic data due this week include personal income and outlays at 8.30 am eastern time on Monday. Tuesdays data include durable goods orders at 8.30 am eastern time and new home sales at 10.00 am eastern time. On Thursday, weekly jobless claims will be released at 8.30 am eastern time.