Is the Stage Set for a Year-End Rally?

livemint.com:

Stock investors are getting early Christmas presents: Third-quarter corporate earnings were strong and inflation keeps heading lower. With all the good news already priced in and bond yields offering stiff competition, though, there is less room for the usual seasonal rally. Investors are feeling optimistic following Tuesday’s lower-than-expected inflation data.

The S&P 500 and the Stoxx Europe 600 are up about 2% and 1% since, respectively, and with their November rebound they have almost erased their losses since the start of August. The two indexes are up 17% and 7% respectively in 2023. This comes on the back of decent consumer-spending figures and a third-quarter earnings season that, despite a slow start, ended up better than Wall Street was anticipating.

The elusive “soft landing" that many economists thought impossible now seems the most likely outcome. There are good reasons to hope for more gains. The Federal Reserve has likely already announced its last interest-rate increase, which historically has almost always led to a drop in 10-year Treasury yields in the following 12 months, a JPMorgan analysis shows.

The bond market is anticipating this now. Furthermore, stocks tend to do well in the final quarter of the year. According to Ned Davis Research, starting in 1987 the MSCI All Country World Index has had an average total return of 4.4% between October and December, making it the best three-month period to invest.