– It seems as if the markets think you should get both bag and sack, says the chief strategist.
Photo: Seth Wenig / AP / NTBPublished: Published:
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It has been a good year for US stock markets.
So far this year, the broad S&P index is up close to 24 percent. The strongest development is the technology-heavy Nasdaq Composite index, which has risen more than 43 per cent, while the Dow Jones is up almost 13 per cent.
When the New York Stock Exchange opens on Tuesday, a short but traditionally strong week awaits.
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A touch of FOMO?
The so-called “Christmas rally” has been explained by, among other things, a rise in shares in January, investors who want to invest cash bonuses or sales at a loss to reduce the tax burden.
At the same time, there is little evidence for the phenomenon, writes Investopediawhich shows that any positive effect in the stock markets at the end of the year is likely to be attributed to the Santa effect.
– There is probably something in it on a historical basis, says chief strategist Christian Lie at Formue to E24.
He points out that investors like to sit with favorable positions at the end of the year.
– They do a bit of what is called “window dressing” so that the portfolios look good at the turn of the year. It may also be that some get a touch of FOMO FOMO “Fear Of Missing Out”, concern that one will miss out on an exciting or interesting event in anticipation of a possible Christmas and January rally and want to take a little more risk.
– Can hide major deviations
Historical data provides, as Lie points out, some support for the phenomenon.
During the period known as the “Christmas Santa rally”, the S&P index has risen an average of 1.3 percent since 1950, according to Stock Trader’s Almanac. If there is no recovery, it may indicate that tough times are ahead. This was evident in connection with the IT bubble that burst in 2000 and the financial crisis in 2008, according to the website.
Lie says he will be careful not to emphasize historical averages.
– Large deviations can be hidden there from year to year. At the same time, it is quite close to the “all time high” in the American market now. That in itself doesn’t necessarily mean anything, but as I see it, the market has relatively optimistic projections now.
– The economy is in a kind of Catch 22 situation, really, says chief strategist Christian Lie at Formue. Photo: E24
The chief strategist points out that the market is now pricing in six interest rate cuts in 2024, twice as much as the Federal Reserve Federal Reserve opened for at the last rate meeting.
– In addition, earnings growth in global and US shares of around 10 per cent is expected. The two things are not completely connected. If the Fed cuts interest rates six times, it will be because of a marked weakening of the economy.
Then it will be difficult to achieve such high earnings growth, according to Lie.
– It seems as if the markets think you should get both bags and sacks.
– High sensitivity to disappointment
Lie says that he thinks the market can continue upwards if the key economic figures come in just right, the inflation figures continue to fall and no Fed members make very aggressive statements.
– There is a high sensitivity to disappointment at the moment. The market is pricing in that things will go well in 2024. What can put a damper on the wheels is if you get financial data that is far weaker or stronger than expected.
Weaker data will cause recession fears to flare up again, while stronger figures could put pressure on the central bank to raise interest rates again, says Lie.
– The economy is in a kind of “Catch 22” situation, the “Catch 22” situation is a dilemma or a contradictory situation, really. It should not go too well or too badly – the market prices in a “golden hair scenario” “golden hair scenario” a situation where price growth falls while avoiding economic decline and high unemployment. That makes it sensitive to other news.
Risk appetite on the rise
The positive mood and falling fear index can help to pull the market down in the short term, according to Lie.
– Usually, the stock market has greater potential to rise when the mood among investors is pessimistic and/or there is high but falling fear as read on the VIX index, he says.
On the other hand, risk appetite is on the way to increasing again.
– The large management environments can choose to further increase their weight in shares if a positive trend continues, which in turn can help to pull the market further up, says the chief strategist.
He points out that there are also around $6 trillion invested in US money market mutual funds, which is significantly higher than before the pandemic.
– If interest rates fall, it can help to increase interest in placing the money in shares instead. It will be able to provide support for market development in 2024.
2023-12-26 13:27:35
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