This year, whether the "Santa Claus" can still bring gifts to stock investors in the USA, the answer will soon be revealed.

At the end of the year, the stock market in the USA often welcomes a prosperous "Santa Claus Rally."

"Santa Claus Rally" refers to the last five trading days of each year (usually starting after Christmas) and the first two trading days of the following year. According to the findings of Yale Hirsch, author of the Stock Trader's Almanac, the stock market in the USA tends to perform strongly during this period.

In the past 70 years,$S&P 500 Index (.SPX.US)$the average increase in these seven trading days can reach about 1.3%, and the probability of entering a bullish market during this period is as high as 78%.

And counting the days, tonight (December 23) on this Christmas Eve will actually be the first day for this year's "Santa Claus Rally" to kick off - this special market trend will continue until January 3 of next year.

Can this year's 'Santa Claus Rally' be opened?

Currently, there are actually two factions in the market regarding whether this year's 'Santa Claus Rally' can be successfully launched: despite historical patterns indicating a seasonal tendency for the US stock market to strengthen towards the year's end, the market's turbulent conditions since last week have left some industry professionals feeling uneasy.

The 'hawkish rate cut' by the Federal Reserve last Wednesday clearly caught many investors off guard, with the S&P 500 Index experiencing its largest single-day drop since August. The market appears unhealthy beneath the surface: 8 out of the 11 sectors of the S&P 500 Index were in negative territory in December, while the CSI 500 Equal Weight Index has fallen 7% from its high so far this month.

Matt Maley, Chief Market Strategist at asset management firm Miller Tabak, stated that as this year comes to a close, another concern for the stock market is the continuous rise in US Treasury yields. The 10-year US Treasury yield, known as the 'global asset pricing anchor,' reached a near seven-month high this Monday, approaching the critical 4.6% mark.

Data shows that the expected PE ratio of the S&P 500 Index is currently 21.6 times, well above the historical average of 15.8. The surge in US Treasury yields could certainly put more pressure on stock valuations. Maley pointed out, 'As this year draws to a close, people are finally faced with the reality: that the stock market is exceedingly expensive, and the Federal Reserve's policies will not be as accommodative as they had imagined.'

Mark Hackett, Chief Market Strategist at Nationwide, also stated in a phone interview, 'After a strong rally in November, the breadth of the US stock market suddenly collapsed in early December. I'm not sure if the traditional Santa Claus Rally will still occur.'

Optimistic voices still exist.

Of course, although the year-end market faces numerous challenges, optimistic voices on Wall Street undoubtedly remain.

Analyst London Stockton from Ned Davis Research mentioned in a report on Monday that despite the relatively lackluster performance of the US stock market before Christmas this year, it is actually not a big deal, and investors still have the opportunity to see a compensatory strong rally. According to the agency's team analysis, when the stock market performs poorly in the days leading up to Christmas, it often sees a significant rebound in the five trading days after the holiday.

Stockton stated that although the S&P 500 Index has fallen by about 2% in the past week, historically, such situations can lead to an average ROI of 2% in the five days after the holiday. In 17 similar cases, the market mostly performed well after the holiday.

In addition to seasonal factors, Ned Davis Research also pointed out other possible reasons for the market rebound before the New Year. For example, based on several Indicators maintained by the agency, the US market has entered a short-term oversold Range.

Moreover, due to the weak performance of the stock market since the beginning of December, investor sentiment indicators show a significant decline in optimism. This may indicate that more funds are in a wait-and-see mode, and once the market improves, these funds may quickly flood in to push up the stock market.

Chuck Carlson, CEO of Horizon Investment Services, also stated that the recent correction in the US stock market may actually have positive implications, as it has more or less eliminated some of the bubble sentiment in the market. Carlson is currently preparing for a further market rebound. However, he also mentioned that "if the stock market falls further, it could pose a greater threat to the Call trend."

The significance of the Christmas market

Some industry insiders used to believe that the "Santa Claus rally" period combined with the next five trading days in January, as well as the overall market performance in January, often serve as a harbinger for the entire year's outlook:

According to the "Stock Trader's Almanac," when the market performs positively during these three periods, over 90% of the time in the past 50 years, the following year will end with higher stock prices.

If the "Santa Claus Rally" phase performs poorly, it may become a dangerous signal. For example, the market decline during the "Santa Claus Rally" phases in 1999 and 2007 ultimately faced the Internet bubble and financial crisis the following year.

Of course, this signal is not infallible...

A recent example is that the S&P 500 Index actually dropped by 0.9% during the "Santa Claus Rally" period last year, but so far this year, the index has still increased by about 24%!

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Editor/rice