Michael Zinn, a senior portfolio manager at UBS Global Wealth Management, has shared his perspective on the current market dynamics as the year draws to a close.
What Happened: Zinn remarked that the Santa Claus rally, which typically brings positive market momentum, is experiencing some pause following a significant post-election surge.
"I think we are having a little bit of indigestion," Zinn said during CNBC's "Squawk Box Asia" on Tuesday.
"We've just seen such a surge since the election you know people are so amped up over all the drivers that have played out so well this year that I think the market is basically taking a little bit of a probably well-needed pause um which makes some sense between now and year-end."
He expressed concerns about the market's narrow breadth, noting that despite recent pullbacks, prices continue to rise, driven mainly by AI-focused stocks. This trend, he suggested, might persist into the next year.
Zinn highlighted that only about 40% of stocks in the S&P are trading above their 50-day moving average, even as indexes like the S&P and NASDAQ hit new highs. He pointed out that this is not a healthy combination and noted speculative behavior in options trading as a warning sign.
However, he remains optimistic about the market's long-term prospects, citing supportive factors such as AI advancements, a new administration, economic growth, and potential Federal Reserve easing.
Why It Matters: The Santa Claus rally is a well-documented phenomenon where stock markets often see gains during the final week of December into the first two trading days of January.
Historically, this period has been favorable for investors, with the S&P 500 reaching record highs during the holiday season. However, this year's rally faces challenges, as indicated by Zinn's observations.
Additionally, recent economic data suggests a robust holiday season, with November retail sales hitting an 11-month high, signaling strong consumer demand. This resilience in spending could potentially support market performance, despite the current "indigestion" in the rally.
Price Action: On Tuesday, SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.41% lower at $604.29 while Invesco QQQ Trust (NASDAQ:QQQ) closed 0.44% lower at $535.80, as per Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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