The annual Christmas rally usually occurs in the last five trading days of the year and the first two trading days of the new year. However, Bank of America stated that if the Federal Reserve can deliver the results investors expect, the year-end rally will start this week.
Given last month's moderate inflation data, investors are almost certain that the Federal Reserve will make its last interest rate cut of the year on Thursday Beijing time. According to the CME FedWatch tool, the probability of this happening is 99.1%.
Bank of America analysts wrote on Monday: 'The second half of December is usually the second strongest period of the year for U.S. stocks. In presidential election years, the S&P 500 has risen 83% of the time in December. This week's FOMC meeting may be the last hurdle before the Christmas rally.'
Despite the market's high confidence in interest rate cuts, some economists question why the Federal Reserve would do so. Analysts point out that a strong economy and rising inflation should prompt policymakers to maintain a hawkish stance throughout 2025.
According to LPL financial strategist George Smith, December has been the second-best performing month since 1950, with an average rise of 1.6% in the benchmark index. The Christmas rally often marks the strongest seven days of the year.
If this happens this year, it will help major indices reach new highs before the end of the year. Recently, stocks and other risk assets like Bitcoin have continuously broken through a series of historical highs as post-election optimism continues to overshadow the market.
Before the Federal Reserve concludes its FOMC policy meeting on December 18, investors will focus on the retail sales data for November, which will be released on Tuesday.
Bank of America analysts said: 'We expect the retail sales report to show that consumption remains strong. There are almost no signs of widespread consumer slowdown. Given the strong growth in real income and wealth, we remain optimistic about consumer prospects.'
High Frequency Economics economist Carl Weinberg noted that average hourly wages in the U.S. increased by 4% year-on-year in November, which will provide enough income to continue driving consumer spending. Retail sales data should be good, as active consumer spending is the reason for the current rapid economic growth.
Article reposted from: Jinshi Data