Investors could see one last boost to Wall Street stocks in the final trading session of the year on Monday, but they do not expect gains to offset losses in the worst December since the 1930s.
“I think there’s a chance that the market could rally into the end of the year,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.
Potential for positive news on a trade dispute with China and anticipation of coming remarks from Federal Reserve Chairman Jerome Powell could lift the market, Dollarhide said. Still, no matter how strong any potential rally is, market unease is expected to remain.
“When you start going through December and it’s the worst December since the Great Depression, it leaves a very strong lasting image as to how bad it has been,” said Dollarhide. “There’s no getting around that no matter how much we rally tomorrow.”
Last week started off with Wall Street’s worst-ever Christmas Eve drop, pushing the S&P 500 to within a whisker of bear market territory. Overall, the global MSCI index, the S&P 500, the Dow and the Nasdaq are headed for their worst years since the 2008 financial crisis.
While data on consumer spending has been strong, housing data has not and the market has been see-sawing amid political insecurity and a U.S. government shutdown.
“It’s a pretty illiquid day Monday ... so I don’t think expectations for fireworks are too high,” said Rick Meckler, partner, Cherry Lane Investments in New Vernon, New Jersey. “I think you’re seeing a good balance now of buyers coming into the market and providing a more solid base and the potential for a little bit of upside.”
U.S. President Donald Trump has suggested progress has been made in a trade dispute with China, which could boost stocks, Meckler said. Additionally, strong consumer data from Christmas spending could support the market.
But after the violent swings this month, the last day of trading is expected to be relatively muted. Few companies make major announcements on the last day of the year, and trading volumes are expected to be light.
Disappointing economic data on Friday reinforced caution, including Japan’s slowing industrial output and retail sales, declining German inflation, and U.S. data for November showing contracts to buy previously owned homes fell unexpectedly.
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Breaking with the bad news, the Chicago Purchasing Management Index came in ahead of consensus.
Major indexes moved in and out of positive territory on Friday, with the Dow and S&P finishing modestly lower, while the Nasdaq eked out a slight gain.
“I think Friday’s close should be viewed as very positive for bulls,” said Oliver Pursche, a board member at Bruderman Asset Management. But despite the turnaround from significant losses in the session, Pursche said investors should be cautious moving into January. “Investors should expect continued outsized moves to the up and down side.”
Editing by Chris Reese