Investopedia describes a ‘Santa Rally’ as the tendency for share prices to rise into the final weeks of the year. Here are five reasons why investors could benefit from a recurrence of this phenomenon in 2021 and, more generally, for a cheerful disposition:
1. US economy is accelerating again. The delta variant slowed the economy in autumn while at the same time the supply chain crisis increased inflation, resulting in downgrades to economic forecasts. However, consumer confidence metrics, early indicators for spending, and recent jobs data, all point to a surprise re-acceleration of the US economy in Q4… and markets like positive surprises.
2. Pfizer and Moderna strike again! Two of the pioneers of COVID-19 vaccines have announced new medicines which can be taken at home in pill form. Reductions in COVID hospitalisations of 80% to 95% have been reported. Combined with vaccines, these could be game changers for the economic recovery and could ease labour shortages.
3. Strong corporate earnings. Corporate profits around the world remain robust, with US stocks reporting an average profit growth in the third quarter (Q3 2021) period +10% above expectations. For European companies, the average beat on expectations was +9%.
4. The recovery trade is still on. There remains a lot of pent-up demand in the system, with many industries (trade shows, business travel, tourism, air travel, events) still not having recovered from the pandemic. As we move into 2022, these sectors are likely to bounce back and offer sizeable gains for investors.
5. Powell gives us clarity. The Federal Reserve has showed its hand with clarity on the actions it will take to reduce stimulus. Tapering has started and will end by next year, while an interest rate decision will have to wait. Markets have reacted positively to this news.
Santa Claus is coming…?
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