Market swings in December: Santa Claus rally or a temporary recovery (dead cat bounce)?
Headline: Santa Claus Rally or Dead Cat Bounce? Market Experts Weigh In
The holiday season has brought about an uptick in the market, with the Philippine Stock Exchange Index (PSEi) experiencing a surge since last Friday, December 1. This market climb, however, has sparked debate among stock market analysts, with some viewing it as a Santa Claus rally, while others see it as a dead cat bounce.
A Santa Claus rally refers to a seasonal increase in stock prices during the last five trading days of December and the first two trading days of January. Historically, it delivers modest positive returns, around 1.1%-1.3%, due to holiday optimism, year-end tax considerations, and bullish retail activity as institutional investors take vacation.
On the other hand, a dead cat bounce describes a brief, temporary recovery in a stock or market that is still in a longer-term decline. It typically happens after a substantial drop, where prices briefly rebound before falling again, reflecting weak or false optimism rather than a sustained recovery.
Market analysts generally expect the Santa Claus rally to be a recurring seasonal phenomenon when economic conditions are stable or moderately optimistic. However, if there is ongoing market weakness or bear market conditions extending into late 2023, a dead cat bounce could instead occur—a short-lived recovery in an overall falling market.
The current market climate is somewhat uncertain. Emerging markets tend to do better when the US dollar is weak, as the US dollar index is falling and likely to decline further. Oil prices are getting weaker, and long-term bond yields are falling, which could lead the US Federal Reserve to slice rates. These factors contribute to a generally optimistic outlook for the market.
However, market strategist Joel de la Penña views the current market climb as a result of speculative plays. Rene delos Reyes and his company, Abacus Securities Corporation, believe there is a good chance of a Santa Claus rally this month. Jofer Gaite, the president and chief trader of Westlink Global Equities, Inc., predicts that the PSEi could climb all the way up to the 6700 level.
Despite these optimistic predictions, some analysts remain cautious. Gaite's predictions are based on the market being easily led by a small number of stocks with large gains and market bears no longer being desperate to sell. The market's daily value turnover continues to trade within the P3.9 to P4.7 billion mark, indicating no significant increase.
In conclusion, the upcoming weeks will be crucial in determining whether the current market uptick is a Santa Claus rally or a dead cat bounce. The likelihood at the end of 2023 depends on whether market fundamentals support optimism or continued bearishness. As always, investors are advised to stay informed and make decisions based on thorough research and analysis.
References:
- Investopedia
- Investopedia
- Investopedia
- Investopedia
- Investopedia
In light of the ongoing debate about the recent market surge, some analysts, such as Rene delos Reyes, posit that there is a possibility of a Santa Claus rally this month, while Joel de la Penña suggests that the current climb might be a result of speculative plays. Meanwhile, investors should aim to make informed decisions for their finance and investing strategies, keeping an eye on whether the market fundamentals will support optimism or continued bearishness in the stock-market.
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