“I will honor Christmas in my heart, and try to keep it all the year.”
-Charles Dickens
Here’s what you need to know this week:
- The Federal Reserve cuts rates but delivers a more hawkish outlook for 2025
- Investors hope Santa Claus brings a strong end to a strong year
Higher for Longer
Markets fell on Wednesday after the Federal Open Market Committee (FOMC) released their notes from their final meeting of the year. The Fed opted to cut interest rates by 0.25% again, bringing the prime rate down to 4.25%. Lower interest rates typically act as a boon to stocks, but investors were more focused on the FOMC’s “dot plot” which forecasts the Federal Reserve’s outlook for interest rates.
Last month’s dot plot showed that the Federal Reserve expected to cut interest rates four times in 2025, while yesterday’s dot plot showed that the Federal Reserve only expects to cut rates twice next year[1]. Many stock investors were caught off guard, but bond traders appear to have been ahead of the curve here: as of writing, the bond market is assigning a 96.5% chance of no cut in January, and has been predicting just two cuts next year since the start of November[2]. Despite yesterday’s selloff, the market has still posted a strong year and investors may turn more optimistic as we head into the jolliest week of the year.
The “Santa Claus Rally”
There are many strange trends and traditions in the stock market, and one of my favorites is the so-called “Santa Claus Rally”. This refers to the final five trading days of the year, as well as the first two trading days of the following year. These seven trading days are historically the best-performing seven-day sequence of trading days. This trend was discovered by analyst Yale Hirsch in 1972, and the Rally has produced a positive market gain 74% of the time between 1950 and now[3]. But why is does this happen?
The truth is that no one knows for sure. It is possibly a combination of the surge in expenditures around the holidays and optimism for the coming year. It is also possibly due to most of the large Wall Street players going on vacation, leaving most of the market activity to individuals, who historically have tended to be more bullish. And who knows, maybe Saint Nick throws a little magic towards the markets on his annual visit.
One interesting point about the Santa Claus Rally is that it can sometimes foreshadow how the market will perform in the January as well as the following year:
As you can see, the markets’ performance during the Rally, whether positive or negative, is often reflected in the coming January. Furthermore, a positive Rally often portends a year of strong growth, while a negative Rally often portends a negative year or anemic growth. Of course, it is important to note that this trend is not always accurate; in fact, last year saw no Santa Claus Rally, and this year is on pace to be the best year for stocks since 2013[4]. While Santa Claus brings joy to many, it is important to remember that he is not a licensed fiduciary.
*There will be no blog for the next two weeks in observance of Christmas and New Years. The blog will return on January 8th for a recap of 2024 and a look ahead to 2025. Merry Christmas!
What Else
- Lawmakers continue to debate a spending bill that would fund the federal government through March
- Israel has begun an incursion into Syria on the heels of dictator Bashar al-Assad’s removal from power
- South Korea impeached president Yoon Suk Yeol over his unconstitutional declaration of martial law at the start of December
- Luigi Mangione has been charged with second degree murder for his brazen assassination of United Healthcare CEO Brian Thompson
- The College Football Playoff begins this Friday, December 20th
- Colorado’s Travis Hunter was named the winner of the Heisman trophy
- The NBA in-season tournament result?
What We’re Reading
The James Webb Space Telescope has produced new images of the Sombrero galaxy, one of the most famous of our celestial neighbors. These new images have revealed previously unknown details about the galaxy’s core; click below to see the new photos and read about the history of the Sombrero galaxy:
What’s Happening Downtown
This Saturday is the final Saturday of the Myriad Gardens’ Myriad and Bright Christmas celebration. The event runs from 10 AM to 8 PM, is free to attend and features a Christmas light show, live music, photos with Santa, story time with Mrs. Claus, crafting classes, food trucks and stalls, and sales from local vendors. Click below to learn more:
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess
Sources: [1] Yahoo! Finance [2] CME Group [3] LPL Research [4] Callie Cox LLC