On Wednesday, the Federal Reserve unabashedly released dovish signals, and Powell also made it clear that interest rate cuts have begun to enter view, triggering a sharp rise in risk assets: the Dow reached a record high, and the NASDAQ and S&P 500 indices hit new highs since the beginning of last year.
On the same day, the Federal Reserve remained on hold as expected. However, the bitmap that has received the most attention in the market shows that most central bank officials expect interest rates to be cut three times in 2024, and the rate cuts have exceeded the predictions of many industry institutions in advance.
The market has reacted enthusiastically to this. It is expected that the Fed will start cutting interest rates next spring will further heat up. The probability of cutting interest rates in March next year has already risen to 75%; at the same time, it is priced that the Fed will cut interest rates 6 times by the end of next year, or 150 basis points.
Although Powell said he did not comment on the views of his Fed colleagues (that is, the prediction that interest rates will be cut three times next year according to the bitmap), he did not contain the market's “interest rate cut expectations,” admitting for the first time that the Fed has begun discussions on cutting interest rates.
This move was beyond everyone's expectations. What used to be the “enemy” of the US stock market is actually moving closer to the market. Some market sources commented that the chairman of the Federal Reserve is acting as “Santa Claus” to send a big gift to US stocks in advance.
Gina Bolvin, president of Bolvin Wealth Management Group, stated, “The Federal Reserve gave the market an early holiday gift today, and they finally made a positive comment on inflation for the first time. It appears that the Federal Reserve is moving in the direction of the market. The 'Santa' rally is likely to continue.”
The increase in “Santa Claus” mentioned by investors refers to one of the many seasonal effects of US stocks — the “Christmas market.”
What is a “Christmas market”?
Every year at Christmas, people look forward to Santa Claus riding a reindeer sleigh and bringing presents to themselves on Christmas Eve.
In the capital market, investors have the same expectations. Because every year at the end of the year, the stock market seems to prepare a special “gift” for investors — that is, the Christmas market.
The “Christmas market” is one of the many seasonal effects of US stocks. It means that between the last 5 trading days of December every year and the first 2 trading days of the following year, US stocks usually experience a wave of growth.
According to statistics from Stock Trader's Almanac, in the 73 years from 1950 to 2022, the S&P 500 index rose 58 times in the last five trading days of December and the first two trading days of January of the following year, accounting for close to 80%. The average increase in the S&P 500 index reached 1.3% during the Christmas market. More importantly, if the Christmas market appears, it may be a sign that the stock market will perform well next year.
According to Almanac Trader statistics, the US stocks have all had Christmas markets in the past 7 years.
In the seven years 2016-2022, the S&P 500 index rose 0.4%, 1.1%, 1.3%, 0.3%, 1.0%, 1.4%, and 0.8%, respectively, during the Santa Claus market.
It is worth mentioning that there have been different situations in the stock market over the past seven years. Take 2022 as an example. The US stock market fell into a bear market, but the Christmas market still arrived as scheduled.
“Santa Claus” is here. Is this year's “Christmas market” more stable?
In November, which has just ended, US stocks recorded one of the best monthly gains in a century, and the S&P 500 index rose close to 9% in November.
Entering December, the US stock market is still shining brightly. The S&P 500 has risen by more than 3% so far, and the overall market sentiment is improving.
Coupled with the strong support of the “dovish Federal Reserve”, the enthusiasm of the market has been fully ignited, and more investors may bet on the arrival of the Christmas market.
It falls to the end of the year,
Can US stocks welcome Happy Ending as they wish?
The Fed's interest rate cut point is approaching. How will you trade?
I'm looking forward to the interaction between cow friends~
Editor/phoebe