It’s mid-December, and everyone wants to know if stocks—and by extension high-yield closed-end funds (CEFs)—are poised to roar into ’24 in a “Santa Claus rally.”
It’s mid-December, and everyone wants to know if stocks—and by extension high-yield closed-end funds (CEFs)—are poised to roar into ’24 in a so-called “Santa Claus rally.”
I’ll venture a prediction, but before I do, I should tell you that I come at the whole idea of a Santa Claus rally from a bit of a different angle than most folks in the business media or on Wall Street.
I actually dislike Christmas cheer in the markets. Not because I’m a Grinch. Rather, it’s because I think Santa rallies are not a good sign for stocks going forward.
Take 2021, a year in which market sentiment whipsawed. But in late 2021, the outlook for stocks was strong—few expected the crash waiting for us in 2022. Thus, the market soared in December of that year.
To put that 5.8% jump in context, the average return in December over the last 20 years is 0.79%—a fraction of the gain we saw in December ’21.
Thus it’s clear that going into 2022, the market was overeager—the perfect time for fear to take over and spark a crash at the first sign of weaker data (which came quickly in the form of higher inflation, spurring last year’s quick run of rate hikes from the Fed).
Similarly, the “coal” that December 2022’s “Santa slump” put in our stockings (I’m not sure what to call it when markets fall in December) was overdone in the other direction.
