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WHAT HAPPENS WHEN SANTA COMES EARLY?

While investors fuss about whether the so-called Santa Claus rally will happen, the market has been quietly rising during the last trading week of 2023.

But Scott Wren, senior global market strategist at Wells Fargo Investment Institute, notes that "the equity market has been throwing a pretty good party for the past two months."

And with the S&P 500 rallying ~17% since its late October lows and up ~25% year-to-date he says "one could easily argue that Santa came early this year."

Citing the Stock Trader's Almanac, Wren notes that December has been the third strongest month on average going back 70 years and the three months between Nov. 1 and the end of January tend to be seasonally strong.

But while saying he really does not want to step in front of Santa's sleigh, Wren cautions that the S&P 500 is well ahead of what his group considers fair value, already trading near the top of his 2024 year-end target range. And based on his estimate for 2024 earnings per share of $220 for the S&P, valuations "are quite stretched," the strategist says.

As a result he says the market may "struggle to post meaningful gains in the first part of the year while the economy continues to slow and before it bottoms out," which he does expect to happen in 2024.

Wren also sees the market consensus expectation for 5-6 Federal Reserve rate cuts, starting in March is "too optimistic."

So all these factors will produce volatility "until the consensus accounts for these negative trends," which Wren says are at the bottom of Santa's sleigh.

(Sinéad Carew)

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