A “Santa Rally” describes a continuous increase in the stock market. This phenomenon happens in the week leading up to Dec 25.
That being said, there's some debate over whether these rallies occur in the week leading up to Christmas or the week after Christmas until Jan 2.
Looking at the previous price history, it's easy to notice that the week after Christmas is notoriously bad.
Prices tend to move sideways in very narrow ranges. This is because market players take care of year-end position adjustments in the week before Christmas when liquidity is high.
There are many explanations for the causes of the Santa rally.
Theories range from
+ Tax considerations and expectations
+ General optimism on Wall Street during the holiday period.
+ One assumption is that large bearish investors go on vacation and leave the market to retail investors with a bullish nature
Do stocks perform well every December？
The last month of the year is a good one for stock investors.
According toRyan Detrick- Chief Market Strategist of ‘The Carson Group’
“December is historically a strong month for stocks, with only April and November performing better and this has been the case since the 1950s!”.
The chief market strategist at Carson Group also adds that trading during the past 3 years has ended on a high note, with December up by 2.9%, 3.7%, and 4.4% respectively.
Finally, he adds that the stock market performs better after the midterms and this trend may also continue in 2023.
December is also considered an excellent time to buy stocks bySam Stovall– the Chief Investment Strategist at CFRA Research.
What can investors expect this year？
Investors are hoping for the year's end to result in stock market gains after a brutal year overall. There's still some expectation of a Santa rally, but many market players are now skeptical.
The S&P 500 has historically gained an average of 1.6% in December. But, according to data from the investment research firm CFRA, this is the highest average of any month and more than double the 0.7% gain of all other months.
Many investors will also welcome these financial gains. This is after seeing the S&P 500 Index fall by an estimated 16% this year. But, the market is still being affected by the Federal Reserve's decision to tighten interest rates aggressively. This is being done in hopes of winning the fight against inflation.
Additionally, Stovall reasoned in November that the question this year is whether the Fed will raise by another 50 to 75 base points.
With the federal reserve choosing the latter option, stock performances may drop. Still, its the perfect time to build your portfolio for the coming year.
Best stocks to buy this December.
With the year winding down, buying stocks that can protect your finances for the coming year is essential. These are the best stock options you can get at affordable rates:
Asbury Automotive Group Inc. (ABG)
The conglomerate operates more than 140 dealerships in 15 states; selling cars and providing third-party auto loans and insurance products.
The stock has fallen by 64% in the 2020 market meltdown, a pullback record of more than 25%. This has provided a solid long-term entry point.
Asbury has continued to increase its earnings per share (EPS) and revenue every year since 2016. It has also recorded three-year average annual growth rates of 53.6% and 22.6%. Considering this, analysts expect average annual EPS growth of18.5%for the next year.
United Microelectronics Corporation (UMC)
United Microelectronics stands as one of the largest global semiconductor foundries. It supplies customers, including Texas Instruments, Intel, Qualcomm, and RealTek. While UMC shares have gained184%in the last five years, the stock is currently trading 40% below its all-time high last year.
But, the company has increased its EPS and revenue with three-year average annual growth rates of 169% and 20.4%. Analysts also project an average annual EPS growth of more than 34% over the following years.
Builders FirstSource, Inc (BLDR)
The company manufactures building supplies like floor and roof trusses. Its shares have grown by more than211%over the last five years. That said, it's currently trading 24% below its 2022 all-time high.
Builders FirstSource has increased its EPS and revenue every year since 2016. This includes three-year average annual growth rates of 94.9% and 44.9%. There are also projections that the company shares will experience up to 18.8% in EPS growth over the next five years.
TopBuild Corp. (BLD)
TopBuild offers insulation and insulation installation services. It also provides fireplaces, fireproofing, gutters, paint, and garage doors. The company shares have recorded value growth of nearly 115.5% over the last five years. But, it has currently dipped by 44% of its all-time high, like Builders FirstSource.
But, it has an expected growth of 22.6% over the next five years. The company's forward P/E is also higher than that of Builders FirstSource. It's currently estimated at 10.3, while BLDR is at 3.9. This is a result of its higher expected growth rate.
Saia, Inc.
Saia is a transportation company that provides logistic services throughout the United States. The stock is currently up by210%over the last five years. However, its currently trading 34% below the 2021 all-time high. This pullback could present the perfect buying chance based on the growth prospects for the company.
The company's annual EPS and revenue have increased considerably in the past five years. It also averaged 44% and 15.6% growth, respectively. For the next half-decade, marketing analysts also predict that the company's EPS growth will continue and average 19.8% per year.
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