Investors Eye Factors That Could Sway Equities in the Remaining Weeks of 2023
As U.S. stocks sit on hefty gains at the close of a rollercoaster year, you are likely wondering about the factors that could impact equities in the remaining weeks of 2023. One key catalyst for stocks will be the expected trajectory of the Federal Reserve’s monetary policy. Cooling economic growth has led to bets that the central bank could begin cutting rates in the first half of 2024.
Seasonal Trends and December Performance
This year, seasonal trends have been particularly strong. September saw a significant drop in stock prices, while October was marked by volatility. However, November experienced a substantial gain. As we enter December, it’s important to note that history shows this month can sometimes move differently from others.
U.S. Employment Data and December Performance
Investors will be closely watching U.S. employment data, set to release on December 8th, to gauge whether economic growth is leveling off. Overall, December has historically been a strong month for the S&P 500, with an average gain of 1.54% since 1945.
The Second Half of December: Santa Claus Rally
The second half of December tends to outshine the first half when it comes to stock performance. This period often sees what is known as a Santa Claus rally, with an average gain of 1.4% for the S&P 500. However, some stocks may face additional pressure from tax loss selling as investors look to lock in write-offs before year-end.
Potential Opportunities for Undervalued Stocks
Stocks that have performed poorly earlier in the year may rebound in December and January as investors return to undervalued names. Research shows that stocks down 10% or more between January and the end of October have beaten the S&P 500 by an average of 1.9% over the next three months.
Concerns of Over-Exuberance and Languishing Stocks
Despite the market’s overall rise, many investment portfolios still contain underperforming stocks. A significant portion of the S&P 500’s gains has been driven by a handful of megacap stocks, while others have languished. Some worry that investor over-exuberance may have already set in after November’s rally, particularly in speculative names.
Hot Take: Caution Amidst Market Rally
As we navigate the remaining weeks of 2023, it’s important to approach the market rally with caution. While there may be potential opportunities for undervalued stocks and a Santa Claus rally in the second half of December, there are also concerns about over-exuberance and certain stocks that have underperformed. Keep a close eye on economic indicators and market trends to make informed investment decisions.
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