By Barbara Kollmeyer
One month to go and we are done with 2020 — and good riddance to one dismal year. When it comes to stocks, though, the year is turning to a far less negative one than many expected, given a deadly pandemic.
There is still a small chunk of the year left to trade, and plenty of debate about whether we will see a so-called Santa rally that tends to occur towards the end of December and into early January, or if the markets are out of steam .
Our call of the day comes from Mark Newton, president and founder of ML Newton Advisors , a consulting based/web subscription financial service. He says investors could see stocks go one of three ways.
“The broader stock market faces the task of confirming the recent rally with a strong continuation move (and not reversing!). Will it happen? That is the big question,” Newton says, in a blog post for See It Market.
Under the first possibility, he predicts stock markets will follow up those gains. Investors would see the ValueLine Composite Index /zigman2/quotes/210598431/delayed VALUA +2.20% , the NYSE Composite /zigman2/quotes/210598036/delayed NYA +1.95% , S&P 500 /zigman2/quotes/210599714/realtime SPX +1.95% , and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.55% all knock out highs above their February peaks. At the same time, the VIX Volatility index /zigman2/quotes/210598281/delayed VIX -13.69% — a measure of stock market volatility — would push through its August lows.
“This would set the tone for another two-three weeks of rally, which would carry indexes higher throughout December,” says Newton.
The second option would involve a “mild pullback” for stocks, coming as the U.S. dollar /zigman2/quotes/210598269/delayed DXY +0.39% reverses recent losses. He expects the S&P 500 would hold around 3,585, then creep up towards 3,720 midmonth.
The last option — the Grinchiest of all — is the least likely to happen, he says. The market would give back all of Tuesday’s gains, dropping through 3,585, then moving under 3,540.
Alas, euphoria still seems to have him bugged. He points out via this retweet that hedging against a 10% loss in the Nasdaq is the cheapest since 2018.
And he points out that call options are doing a boom right now. That gives buyers the right, but not an obligation to buy, an asset at a future date at defined price. In short, those are bullish bets.
Stocks /zigman2/quotes/210599714/realtime SPX +1.95% /zigman2/quotes/210598065/realtime DJIA +1.85% /zigman2/quotes/210598365/realtime COMP +1.55% are modestly higher. European equities /zigman2/quotes/210599654/delayed XX:SXXP -0.78% are steady , and Asian stocks were a mixed bag . Chinese services-sector data came in better than expected.
Oil prices /zigman2/quotes/211629951/delayed CL.1 +3.84% are down, ahead of a decision on production cuts from an already delayed meeting of the Organization of the Petroleum Exporting Countries and its allies.
Albert Edwards, global strategist at Société Générale, says if the U.S. is facing a double-dip recession, markets may struggle to “look through” that.
“Maybe they will this time, but history suggests otherwise, especially if the U.S. follows Japan and the eurozone into outright deflation,” he says, in a note to clients. Here’s his chart.