Can COVID cancel the Christmas rally?

The article was written by me for FXEmpire

Stock indexes have set new records last week but were not able to hold the highs and gave a small pullback.

Last week’s IPOs have been the real attention-getters. 

Airbnb’s market debut became the biggest IPO of 2020 with the company’s stock skyrocketing straight out of the gate. Combined with DoorDash’s IPO, companies in 2020 have now raised more than $167 billion, already a record and with more still to come. Some of the highly anticipated IPOs expected before year’s end include social gaming company Roblox, fintech company Affirm, and ContextLogic, parent of discount e-commerce platform Wish.

Another key stock market event to be aware of will be the addition of Tesla into the S&P 500 index on December 18, a transition began last week.

Fundamental analysis

On the stimulus front, no breakthroughs have been reported with the same divides over state and local aid sought by Democrats and liability protections sought by Republicans. Congress is also still trying to strike a funding deal, though they did extend their self-imposed deadline to December 18. There is not a lot of time left to get something passed this year with January 1st exactly three weeks from today.

Technically, next week is the last that Congress is scheduled to be in session until they reconvene on January 3 to swear in new members.

It’s also worth noting that Monday marks an important date in the Presidential election. Electors from all 50 states are due to cast their votes for the next President. Those votes must be received by federal election officials by December 23, which will be counted by the new Congress on January 6.

Bears continue pointing to spiking Covid-19 cases and a growing number of renewed lockdowns they believe will eventually lead to a fallout in stock markets, which they view as extremely overvalued. Can it destroy the Christmas rally?

A rally is the result of Christmas sales. People need money to spend it. With all the lockdowns it seems very unlikely. However, let’s have a look at official data. Continued claims (insured unemployment) rose dramatically this year. But made a significant recovery since that time. 

Wage growth did not make a big drop. It keeps balancing up and down in a tight range. Taking into account lockdowns and other anti-COVID measures, it looks strong enough to support Christmas sales.

An interesting situation is happening with credits. The difference between 2008 and 2020 is extremely big. People paid off their credit card debts.

The situation with consumer loans, in general, is not so optimistic. But it also shows signs of recovery. 

With that in mind, we can expect good Christmas sales. Therefore, chances for a Christmas rally in the stock market are high.

SP500 technical analysis

Advance Decline Line is a bit stronger than the price and it indicates the strength of SP500. The cycle forecast is about to turn to the upside in a week. Despite a slight sell-off last week, SP500 holds all key supports. However, choppy trading may continue for 5 – 7 trading sessions followed by the formation of a buy signal.

If you want to survive trading these markets then you learn fairly quickly how important it is to protect against risk. I am here to help you find better trades and navigate these incredibly crazy market trends. I can help you preserve and grow your long-term capital with my managed accounts and market research that tell you when long-term trends are starting and ending. Don’t wait until it is too late!

Can COVID cancel the Christmas rally? by Inna Rosputnia

Wishing you a great week!