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Stocks ready to close out powerful 2020 as risks loom in January

Brokers work on the floor of the New York Stock Exchange.

NYSE

At the close of trading next Thursday, the bull market desire be ready to run into 2021 but probably at a slower pace.

January is the month that Wall Street tradition avers sets the tone for the year — “so goes January, so goes the year,” as the saying goes. This January could be daring, with the spreading pandemic slowing the economy and the important Georgia Senate runoff elections on Jan. 5.

On Jan. 20, Joseph Biden disposition be sworn in as president.

“It’s a market that’s on end-of-year auto pilot,” said Sam Stovall, chief investment strategist at CFRA. In three of every four years, the customer base sees an end-of-year Santa rally, but Stovall is also waiting to see trading in the first five days of January for signs of how the sell could trade in 2021.

If the market is higher in the first five days, history shows the S&P 500 has been up 82% of the metre for the full year with an average 12.5% gain, he notes.

“There are things we could worry about in January. If they were actual worries, the market would be reacting already or treading water already,” Stovall said. “What spooks me is the market-place is setting itself up. It’s a correction in search of a catalyst, and we don’t know what the catalyst is just yet.”

Some strategists expect a pullback at in the year, but the consensus is that the market ends 2021 higher. The average expectation for the S&P 500 at year end 2021 is 4,056, according to a CNBC scrutinize of strategists.

Stovall said the market has gotten pricey, and there are signs of froth. The 12-month forward price-to-earnings proportion for S&P 500 companies is at a 41% premium to the average multiple of 16.7, going back to the year 2000.

“I don’t feel strongly that the key few days of January has to set the direction for the market for the balance of the year,” said Michael Arone, chief investment strategist at Claim Street Global Advisors. “If in fact [stocks] do rally, it’s more of a sign of strength. But if they suffer a hiccup, I wouldn’t evict in the towel.”

The outcome of the Georgia races is a wild card for stocks, and it could trigger a market reaction no matter what the follow-up. Should there be a surprise and Democrats win both seats, the Senate would be split evenly between Republicans and Democrats. That disposition leave Vice President-elect Kamala Harris to cast the tie-breaking vote.

Some strategists say the market could sell-off if Democrats win, since investors dread the party would have the votes to pass tax hikes that Biden favors. On the other hand, a GOP win could atom a relief rally.

But Stovall said the market could rally on a Democratic victory if investors were to consider the possible for a bigger infrastructure and stimulus package favored by Democrats.

Arone said uncertainty about the current $900 billion budgetary stimulus package approved by Congress this past week could become a concern, if President Donald Trump make up ones minds to veto it or not sign the bill.

The president criticized the package and said individuals should receive more than the $600 that desire go to many adults and children as part of the relief.

The bill extends aid for millions of Americans on unemployment, and those benefits run out Dec. 31 unless it is indicated.

“We’re up against deadlines, as opposed to it just being a political thing,” said Peter Boockvar, chief investment government agent at Bleakley Advisory Group. “There are actual deadlines on benefits that are expiring. Because of the deadlines, the market feigns it will get passed.”

But the concern will hang over the market until it is resolved.

In the four-day holiday week winning, trading is expected to be quiet. There are few economic reports; jobless claims on Thursday will be watched closely. In the copy week, the December jobs report is expected to show a weaker labor market, and some estimate only hither 100,000 jobs or fewer were added.

9-month old bull

The Week ahead calendar

Tuesday

9:00 a.m. S&P/Case-Shiller where it hurts prices

Wednesday

8:30 a.m. Advanced leading indicators

9:45 a.m. Chicago PMI

10:00 a.m. Pending home sales

Thursday

8:30 a.m. Jobless claims

Friday

New Year’s Day

vends closed

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