The annual Christmas rally usually occurs during the last five trading days of the year and the first two trading days of the new year. However, Bank of America says that if the Federal Reserve can deliver the results that investors expect, the year-end rally will start this week.

Given last month's moderate inflation data, investors can be 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 occurring is 99.1%.

Bank of America analysts wrote on Monday: "The second half of December is typically the second strongest period for U.S. stocks of the year, and in December of a presidential election year, the S&P 500 has risen 83% of the time. 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 lead 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 benchmark index increase of 1.6%. The annual Christmas rally often marks the strongest seven days of the year.

If such a scenario occurs this year, it would help major indices reach new highs before the end of the year. Recently, stocks and other risk assets like Bitcoin have consistently broken through a series of historical highs, as post-election optimism continues to loom over the market.

Before the Federal Reserve concludes its FOMC policy meeting on December 18, investors will focus on the retail sales data for November to 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 broad signs of consumer slowdowns. Given the strong growth in real income and wealth, we remain optimistic about consumer prospects."

Carl Weinberg, an economist at High Frequency Economics, pointed out that average hourly wages in the U.S. rose 4% year-over-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: Jin Shi Data