A seasonal phenomenon, Santa Claus Rally or Santa Rally is generally used to define a situation wherein positive performance or results in the stock markets on account of Christmas and New year are witnessed, but the reasons for this phenomenon remain quite hazy. The premise around the same is built up on a mix of conditions and these could be the holiday goodwill among investors, rebalancing of portfolios by the fund managers at the end of the calendar year, then investors putting the Christmas bonus in the markets or the bargain hunting that hits the market before the prices shoot up again as we enter January next year.
Once the rally starts it causes a ripple effect and leads to further gains as the sentiments change and investor confidence rises. The rally usually starts building up in the mid-December and can be seen by end-of December through to start of January, but every year it can change and might start early or late depending on overall market sentiments. This year it seems the markets have taken a note early as with the likely positive hints on the outlook of trade from the US President Donald Trump and Xi Jinping of China on the agreed 90-day trade war treaty. Then the U.S. stance on putting a pause in interest rate hikes has favored the bullish momentum. The downside risks to global growth remains there but currently the Wall Street is seen to be rebounding as they closed higher on Friday i.e. as at November 30, 2018 and looks like ASX 200 is rebounding as well gaining around 2% at 5771.2 and all ordinaries at around 5856.3 as at December 3, 2018.
After the trade talks, the IT stocks which were earlier being rejected by the investors in the US are now gaining traction and looks like ASX is rebounding with respective IT stocks being up today as at December 3, 2018. This news came after a major sell off in November and is a much-needed relief for the IT sector which is up by about 2.4% or 26.9 points at 1,138.1. Some of the IT stocks to the likes of Xero Limited (ASX: XRO) gaining 2.608%, Link Administration Holdings Limited (ASX: LNK) up by 1.144%, WiseTech Global Limited (ASX: WTC) up by 6.31% and Computershare Limited (ASX: CPU) up by approximately 2% have taken a front foot. Even the defensive stocks have come up as ASX posted a 2-year high return with stocks like Woolworths Group Limited (ASX: WOW) gaining approximately 1% and Ramsay Health Care Limited (ASX: RHC) also gaining almost 1% on the ASX. Thus, the market will start reeling on value stocks as well.
After a positive change in terms of the oil price movement as compared to yesterday’s close, energy sector gained over 4.5 percent, as the oil price change comes from Canada cutting crude and bitumen output by 325,000 barrels per day, and Russia’s extension to its deal managing the oil market in Saudi Arabia. However, here also many investors may find some opportunities given the resilient nature of company fundamentals while the stocks remained at low levels for quite some time.
It may be too early to say that we have entered the Santa rally at the very start of December but with the positive signs it is likely that stocks will perform better going forward, and we may see a bull market by the end of the year and this may continue into the next year.
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