You may have heard of a long documented market phenomenon, aptly called the Santa Claus Rally, referring to the markets history of outsized returns during the last five days of the year and the first two days of the New Year. During this time frame, the market rises 77% of the time with an average return of 1.7%.
No one really knows why this pattern exists; though some attribute it to year-end portfolio tax related adjustments, vacations and plain old holiday optimism. The amazing thing is, despite being known for decades, the rally continues to persist.
It seems in good and bad years alike, the year ends with a bang.
In what is a good sign for the overall economy, the Federal Reserve announced today it would hike interest rates from the current near 0 level to 0.25%. The widely expected move is sigificant because it marks the first time the FOMC will raise rates off of 0 since its unprecendented move to lower rates to stimulate the economy in December of 2008.
This is an historic decision and one market watchers have been anticipating for years. As a result, coverage of the announcement has come in from all angles. Below are a few of our favorite articles:
- The Washington Post wrote a great explainer earlier this week on everything you need to know about the Federal Reserve's expected interest rate hike.
- Vox points out that this first hike since 2006 is a big deal.
- Do you remember what the world was like in 2006?
- The Fed increased rates but expects rates to increase at a slower pace than before.
- Bond markets took the move in stride.
- FiveThirtyEight asks now what?
- Barrons takes a more stock specific look at what to expect.
- Morgan Stanley points out that the Fed is on schedule compared to past rate hike decisions.
- Here are all the charts you could want.
When the Federal Reserve hikes interest rates for the first time this recovery – and all signs point to a December liftoff – it will mark the end of the Fed’s easing policy but not the start of tightening. Tightening has been in motion since the Fed ceased its Quantitative Easing program in 2014. Still, many investors fear the Fed will be raising rates too soon despite the fact the stock market historically rallies following interest rate hikes.
The valuation of the stock market has been a trendy topic for financial blogs and newspapers as market watchers question whether the stock market is overvalued. There are essentially two schools of thought: On one hand, Robert Shiller, the Nobel-Laureate economist who correctly predicted the 2001 and 2008 recessions in his book Irrational Exuberance, has been calling the stock market overvalued for years, most recently doubling down in the aftermath of August’s correction. On the other hand, Jeremy Siegel, the acclaimed “Wizard of Wharton” for his track record forecasting the stock market’s ups and downs, has repeatedly made the case that, considering today’s low interest rates, the stock market is fairly valued.