Santa Rally, Market Outlook for December 2024 and Beyond

As the year draws to a close, investors are keenly watching for the much-anticipated “Santa rally,” a phenomenon where stock markets tend to rise during the final trading days of December and the first two trading days of January. Historically, this period has seen positive momentum, driven by factors such as year-end tax strategies, holiday optimism, and retail investors investing holiday bonuses2. However, the outlook for December 2024 is nuanced, influenced by a mix of economic and geopolitical factors.

Key Market Influences

Politics
The political landscape has been a significant driver of market sentiment throughout 2024. The US presidential election, culminating in Donald Trump’s re-election, has introduced both optimism and uncertainty. Trump’s pro-business stance, including proposed corporate tax cuts and deregulation, has buoyed investor confidence. However, his aggressive trade policies and tariffs have raised concerns about potential inflationary pressures and disruptions to global supply chains4.

Interest Rates

Interest rates have remained a focal point for investors. The Federal Reserve’s stance on monetary policy, influenced by persistent inflation, has kept rates higher for longer than many anticipated. This has had a mixed impact on markets, with higher borrowing costs weighing on consumer spending and corporate profitability, while also providing a boost to financial stocks.

China

China’s economic performance has also played a crucial role in shaping global market trends. The country’s growth has been hampered by ongoing trade tensions with the US and internal economic challenges. These factors have contributed to a cautious outlook for global equities, as investors weigh the potential for further slowdowns in one of the world’s largest economies.

December 2024: Market Outlook

As December unfolds, several factors will influence whether markets experience a Santa rally. Analysts from Goldman Sachs forecast a 4% year-end rally for the S&P 500, driven by retail investors’ appetite for equities and corporate share buybacks. However, caution is advised due to potential headwinds such as inflation, interest rates, and geopolitical tensions1.

Looking Ahead – 2025: Trump’s Second Term
Donald Trump’s second term as President, beginning in January 2025, is expected to have a profound impact on markets. His administration’s economic policies, including proposed corporate tax cuts and deregulation, are likely to stimulate business investment and economic expansion. However, his trade policies, particularly the imposition of tariffs, could introduce volatility and inflationary pressures4.

Sectoral Impacts

Different sectors are expected to respond variably to Trump’s policies:
Technology: Benefiting from anticipated deregulation and advancements in artificial intelligence.

Energy: Fossil fuel producers may see a boost due to relaxed environmental regulations, while renewable energy stocks could face challenges.

Financials: Banks and financial institutions are optimistic about deregulation efforts, expecting increased profitability.

The outlook for US and global shares in December 2024 is cautiously optimistic, with the potential for a Santa rally tempered by economic and geopolitical uncertainties. As investors look ahead to 2025, the impact of Donald Trump’s second term will be closely watched, with significant implications for various sectors and the broader market. Balancing optimism with caution will be key for navigating the final month of the year and beyond.