Here’s What Would Give the U.S. That Santa Claus Rally

Author:
Publish date:
Video Duration:
1:35

We may get that Santa Claus rally after all.

Well, at least on condition that the U.S. gets a strong jobs report on Friday, one investment strategist says.

The S&P 500 is up 4.7% in the past three months as stronger-than-expected economic data and some blips of trade progress between the U.S. and China have given investors optimism.

In the past few days, President Donald Trump’s comment that he isn’t necessarily interested in a trade agreement before the 2020 election has the S&P 500 down 1.27% in the past five days.

But a Santa Claus rally usually occurs for reasons separate from macroeconomic and corporate fundamentals. And Commonwealth Financial Networks’ chief investment officer, Brad McMillan, told TheStreet that such a rally is possible.

“Should the jobs report come in reasonably healthy and the trade negotiations keep moving forward, December will also likely be a better month than the headlines at the start of the month suggested,” he said.

The ADP jobs report showed the U.S. economy added 67,000 jobs in November, the weakest result in six months and less than half economists’ forecast of 156,000. Stocks have been roughly flat since the result came out.

Often, the ADP result and the Bureau of Labor Statistics result differ by a wide margin, with the BLS the source more trusted by investors. The BLS will release the result Friday.

A strong jobs report would likely continue the narrative that the U.S. economy is not decelerating as rapidly as previously thought. Third-quarter GDP growth came in at 2.1%, better than the expected 1.7%.A poor jobs result could prove the GDP result more of a blip on the radar than a trend to believe in.

Contracting manufacturing activity and stalled capital investment from corporations have been a consistent theme since August, making some on Wall Street worried that job growth is soon to slow significantly.

Either way, the S&P 500, on average since 1950, gains 1.6% in December, making the Christmas month one of the best months of the year for stocks.

But the market may have hit tops for gains for the year, as November was particularly strong. November saw a gain on the S&P of 3.6%, better than its average gain of 2.5%.

The time between December and April is also the strongest stretch for the index historically.

The S&P 500 has had a "really outsized performance for the month of November, so I think we've pulled forward a little bit of the six-month strength,” said Lindsey Bell, chief investment strategist at Ally Invest.