Wall Street awaits 'Santa Rally' with US stocks near records

investing.com:

By Lewis Krauskopf

NEW YORK (Reuters) — Wall Street is counting on the so-called Santa Claus Rally to bring record highs as markets close out 2023 with strong gains.

The S&P 500 is up over 4% in December alone and has risen 24% this year, bringing it within 1% of a new all-time high. The benchmark index is also on track for its eighth straight positive week.

If history is any indication, that momentum is likely to continue in the short-term. The end of the year tends to be a strong period for stocks, a phenomenon dubbed the “Santa Claus Rally.”

The S&P 500 on average has gained 1.3% in the last five days of December and first two days of January, according to data from the Stock Trader's Almanac going back to 1969. Those gains have been pinned on reasons varying from buying before the new year following tax-related sales to general holiday hopefulness.

This year, optimism is high. The Federal Reserve surprised investors earlier in December by signaling that its historic monetary policy tightening is likely over and projecting rate cuts into 2024, following signs that inflation is continuing to moderate. Data on Friday supported that trend, showing annual U.S. inflation — as measured by the personal consumption expenditures (PCE) price index — slowed further below 3% in November.

“The narrative will continue to be about the Fed making a dovish pivot,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “That provides support on markets and sentiment and that is unlikely to change next week.”

Investors have lately demonstrated a hearty appetite for stocks. BofA clients bought $6.4 billion of U.S. equities on a net basis in the latest week, the largest weekly net inflow since October 2022, BofA Global