- According to Ed Yardeni, the stock market could experience a Santa Claus rally through year-end.
- Yardeni believes that the midterm elections will ignite a strong rally which could last for several months.
- Yardeni stated that midterm elections, no matter the outcome, have a tendency towards being very bullish.
According to Yardeni Research’s Ed Yardeni, the Santa Claus rally could be triggered by the upcoming midterm election.
Yardeni wrote to clients last month that midterm elections had been “consistently bearish” for the market. This has led to average upside S&P 500Gains of 0.5%, 0.6% and 1.4% respectively were recorded in the months October, November, December and December.
You can see the longer-term gains even more strongly. Based on historical data analyzed by Yardeni, since 1942, the S&P 500 has delivered average three-month, six-month, and 12-month gains post-midterm election of 7.6%, 14.1%, and 14.9% respectively.Â
“We concluded that Santa Claus rallies are possible in Virginia. Yardeni explained that this seems to be more common during midterm elections.Â
Historical data are not indicative of future returns. Investors have a lot to contend with, which may not be the case during past year-end rallies. The Fed is focusing on inflation, which is at its highest point in four decades. An aggressive path to increase interest ratesConsumers are being squeezed by wage inflation that is not keeping up with the wider rate of price change by more than 400 basis point this year.
The Fed is also beginning to Reduce its $9 trillion-plus balance sheet by releasing $95 billionmonthly value of treasuries or mortgage-backed securities
Yardeni however claims the market already knows everything.Â
“The market knows what they are.” [Fed]going to do 75 base points. Yardeni stated that the market is now confused about 50 basis point versus 75 basis points December. CNBC last month. “I believe the market is looking to a pause. I don’t believe they are looking for a pivot. They are looking for a pause. “The Fed has been extremely aggressive.”
And the economy is doing just fine. Expectations exceeded by third quarter GDPAnd the labor market is still resilient. The number of new jobs opened in September rose by almost half a million. This puts the Fed in a stronger hawkish position as they attempt to curb inflation by slowing down their economy. Stocks don’t like Feds that are too hawkish.
“The most bearish theme for stock investors this past year was the old adage, “Don’t fight the Fed,” especially when the Fed is fighting inflation. The market could be anticipating a red tide in the midterm congressional elections as well as a rapidly approaching final federal funds rate. Yardeni stated that Santa Claus may be coming to an end after the mid-term elections.
