Is (the) Santa Claus (Rally)
Coming to Town?

santa claus rallyMerry times are here. We’re happy. You’re happy. Wall Street is happy.

With the gains on Tuesday, the Santa Claus Rally appears to be in place, as long as we see gains in the last five trading days of the year, followed by the first two sessions in January. Historical records indicate that stocks have increased an average of 1.6% since 1969, according to the Stock Trader’s Almanac. In fact, failure to see gains could indicate a negative start in the New Year. So far, we are good.

The fact that the economy is expanding despite a lack of strong jobs growth is encouraging. We are seeing what economists call a jobless recovery. And this will likely continue in 2011, as the unemployment rate is expected to remain high, but President Barack Obama’s $858-billion tax extension will help drive consumer spending and economic renewal.

The final estimate of the third-quarter GDP was slightly weaker than expected at 2.6% versus the 2.7% estimate, but above the 2.5% second reading.

The charts of some of the key stock indices are positive and point to potentially more gains after the break at the previous chart tops. I’m encouraged by the ability of the major stock indices to edge higher after breaking the previous chart tops.

As I said in my previous commentary, I’m positive for U.S. and Canadian stocks in 2011. I expect technology and small-caps to drive trading again in 2011.

Outside of the U.S., I like the BRIC countries, comprised of Brazil, Russia, India and China. Also take a look at the smaller Asian countries, such as Malaysia, Indonesia, Korea and Taiwan.

One region of concern in my view will be Europe. As you know, there is muted growth and rising debt and deficit levels in Greece, Spain, Portugal, Ireland, Italy and Belgium. If not for capital from Germany and France, it would be far worse there.

I will discuss the situation in more depth in the New Year. Until then, I wish you all a safe and happy holiday season.