Is It Time to Buy the “Santa Rally?”

Santa has come and gone, and in his wake, he spurred on a bonafide rally. Stocks shot higher this morning in the market’s first post-Christmas trading session. All three major indexes rose while the S&P touched a new all-time high.

Analysts quickly jumped on the hype train soon after today’s open, making several bullish predictions in the process.

“We do not expect Omicron to impact the growth outlook in any significant way, but rather it is likely to accelerate the end of the pandemic,” said JPMorgan’s Dubravko Lakos-Bujas, echoing our own commentary from several weeks ago about how Omicron may actually be a positive due to its less-lethal nature compared to prior variants.

Dr. David Katz, who serves as the president of a nonprofit doctor coalition called the True Health Initiative, threw in his two cents on Omicron’s beneficial nature as well.

“One of the ways pandemics end is significant mutation of the virus. It looks like Omicron may be our friend in that regard, significant mutations different enough from the parent that it doesn’t make people as sick,” Katz said.

Dr. Anthony Fauci threw some cold water on Katz’s rosy outlook, however, in a morning interview on ABC’s “This Week.”

“Every day [new cases go] up and up. The last weekly average was about 150,000 [Omicron infections] and it likely will go much higher,” Fauci explained before adding that Omicron cases should only surge further in the weeks to follow.

Still, it seems that bulls are already looking past Omicron. Certain stocks – airlines and cruise lines, mostly – remain stunned by rising infection totals. But for the most part, a bullish continuation looks to be underway provided that no new lockdowns are announced by major economic powers.

“The focus among investors and traders continues to remain on three important factors. Firstly, the economic data —traders would like to see more strength in the economic numbers, then you have the ongoing omicron Covid infection ratio — this is increasing for the last number of weeks, and finally the hawkish monetary policy stance among central bankers,” said AvaTrade’s chief market analyst, Naeem Aslam.

“The fact is that no one wants to see another total lockdown as they have an adverse influence on the economy. The world is still suffering from supply bottleneck shortages due to Covid restrictions introduced last year.”

It’s easy to forget that the Fed’s hawkish shift accelerated at the December FOMC meeting. Fed Chairman Jerome Powell now expects to raise the federal funds rate three times in 2022. Persistently high inflation and a broken-down supply chain have complicated things as well.

That might not matter for bulls, though, if the market sticks to its seasonal tendencies. Following Santa rallies, stocks typically adhere to the bullish “January Effect.”

Will the seasonal tendency hold up again? It certainly could.

But, unlike in the past, the current holiday season carries far more uncertainty and volatility than normal. That makes buying at today’s highs a treacherous affair, especially when you consider that most major trading firms have closed for the year, shrinking trading volumes.

However, if Santa can deliver more gains before the New Year, a true bullish breakout may occur, lifting the indexes to even higher highs in the coming days despite Omicron infections rising in lockstep with share prices.


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