Is the ‘Santa Rally’ at risk?

Henry Jennings | Marcus Today

Much has been written about the upcoming risks. It has been a big week after all. We have had the RBA; the US election, and we are pregnant with the Fed decision. We have also seen the US reporting season creating some extra volatility. So, the question is now we have all these risk events out of the way, where does the market go now? We are running into Xmas after all. The market does tend to get all jolly and Christmassy and rally into the end of the year. We are all old enough to have had our beliefs challenged  but the Santa rally is a real thing. But if everyone is expecting it, does it happen?

When I was young, I used to set up traps for Santa. I had an electronics kit that was configured as a rudimentary alarm system. It buzzed when it was triggered by a trip wire. Of course, Santa was wise to this, and I never managed to catch him. But I believed. Doesn’t every kid. Doesn’t every investor believe too? The Santa rally. This year it is different. There is a pile of cash sitting on the sidelines. Buffett has US$325bn just sitting there burning a hole in his pocket. Why has Berkshire Hathaway got so much cash? Is it expecting things to turn nasty? Will it deploy its cash in the coming months into new investments? Many commentators are revising up their year-end targets. The theory being, that all this cash will find its way back into the market after the risks have passed. Counter to that, is that everyone seems to be long and bullish. If that is the case, who is going to buy it? The Bears? The Fresh money? Will we see a FOMO rally into the New Year? It will depend on two things. A clear mandate for a US President and a significant stimulus from China. Let’s put a number on it. Markets like numbers even if they are wrong. Changing sentiment in China will take time. They plan for decades.

The ASX 200 is dominated by banks and miners. The bank results will be solid. Solid, but no huge growth, yet they are priced for growth. Hard to see a significant rally from these levels. So, it will be up to the miners. That is a messy space. Gold miners have been solid, not as leveraged as it turns out to the bullion price, as we would have liked. Lithium is a dead battery for now. Base metals, like copper, are probably in a better space, but any move higher will be tepid. Iron ore seems to have found $100 as its floor, but again, unless China ‘kitchen sinks’ it and goes back to the old playbook, then the upside on ore prices seems limited. The same applies to BHP, RIO, and FMG. Oil and gas stocks remain underwhelming and that is despite all that has happened in the Middle East, Brent is still $70.

So where is the Santa rally with the two big drivers pulled up and giving the Reindeer a break?

Source: Marcus Today

MIA, perhaps? We do follow the US, and in this day and age of passive ETF investing, maybe it doesn’t matter about bank or miner valuations. Just buy the index, stupid.

We will have no relief on rates from the RBA.  2025 at some point, but until then we are on our own. Maybe the Fed will be the catalyst. It is not like we will get a surprise!

There is plenty of guidance being reaffirmed this AGM and update season. There is not much sizzle, though, and not much excitement out there. Maybe Nvidia will be a catalyst. But how does that translate to the ASX? I'm damned if I know.

Maybe this is the year that Santa goes AWOL or waits until the New Year, armed with new money and January sales to push things along. Until then, it may require some faith that any kind of Santa rally is coming. I have my alarm set again, hopefully it will give me a warning this year. I believe. Don’t disappoint me Santa, even if you come late.
 

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