By David Randall
NEW YORK(Reuters) – As U.S. stocks sit on hefty gains at the close of a rollercoaster year, investors are eyeing factors that could sway equities in the remaining weeks of 2023, including tax loss selling and the so-called Santa Claus rally.
The key catalyst for stocks will likely continue to be the expected trajectory of the Federal Reserve’s monetary policy. Evidence of cooling economic growth has fueled bets that the U.S. central bank could begin cutting rates as early as the first half of 2024, sparking a rally that has boosted the S&P 500 19.6% year-to-date and taken the index to a fresh closing high for the year on Friday.
At the same time, seasonal trends have been particularly strong this year. In September, historically the weakest month for stocks, the S&P 500 fell nearly 5%. Stocks swung wildly in October, a month noted for its volatility. The S&P 500 gained nearly 9% gain in November, historically a strong month for the index.
“We’ve had a solid year, but history shows that December can sometimes move to its own beat,” said Sam Stovall, chief investment strategist at CFRA Research in New York.
Investors next week will be watching U.S. employment data, due out on Dec. 8, to see whether economic growth is continuing to level off.
Overall, December has been the second-best month for the S&P 500, with the index up an average of 1.54% for the month since 1945, according to CFRA. It is also the month most likely to post a gain, with the index rising 77% of the time, the firm’s data showed.
Research from LPL Financial showed that the second half of December tends to outshine the first part of the month. The S&P 500 has gained an average of 1.4% in the second half of December in so-called Santa Claus rallies, compared with a 0.1% gain in the first half, according to LPL’s analysis of market moves going back to 1950.
Stocks that have not performed well, however, may face additional pressure in December from tax loss selling, as investors get rid of losers to lock in write-offs before year-end. If history is any guide, some of those shares may…
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