2022 is going to be a terrible year for the stock market. The stock market fell almost from the beginning to the end of the year. The Nasdaq Composite is down 26.74% for the year, and the S&P 500 is down 14.57 %. The Dow Jones Industrial Average is the best performer, down just 5.25% for the year after its latest rally. The U.S. stock market has entered the last trading month of 2022. Will there be a Santa Claus Rally that everyone has been looking forward to in December? This article will analyze the stock market in December from multiple dimensions.

"Santa Claus Rally" refers to the U.S. stock market usually rising sharply in the last five trading days at the end of the year and the first two trading days of the new year. Since 1969, the S&P 500 has risen an average of 1.3% during the seven-day "Christmas market."

The performance of the stock market throughout December is also usually outstanding. The chart below shows that the average return for the S&P 500 in December from 1950 to 2021 is 1.42 %. That is better than most months. In the 72 years, the S&P 500 index rose in December in 54 years, and only 18 times did the S&P 500 index fall in December.

The reason for the Santa Claus Rally is very complicated, and there is no definite conclusion.

Behind this "magic" effect is the adjustment of funds by institutional investors before the holiday. Of course, it is also related to the general optimism and festive atmosphere in the market:

Conversely, if the market fails to rally during these seven days, it could be a warning sign - indicating further market weakness early next year. In the past 20 years, there have been five times "Santa Claus Rally" that did not appear as expected. The stock market fell in January of the following year all five times.

First of all, let me talk about my point of view. I still think it has a good chance of a Santa Claus Rally this year. Let's analyze the market from several dimensions:

In 2022, the most important macroeconomic problem is high inflation in the United States. The Fed can only reduce inflation by continuously raising interest rates and implementing quantitative tightening policies (Q.T.) to solve the problem of high inflation in the United States. The main factor affecting the stock market this year is the policy stance of the Federal Reserve. On November 30th, 2022, Federal Reserve Chairman Powell delivered a speech. The main contents of his speech include:

Compared with Powell's previous statement and other Fed officials such as Brad's statement, Powell's expression appears relatively dovish this time.

Powell's usual statement: "The Fed will stop inflation at all costs." This time he changed the words to: "I don't want excessive tightening to break the economy." Powell also mentioned stopping Q.T., which was unexpected by the market and is also one of the main signals that the market believes that the Fed chairman has turned dovish. After Powell's speech, the three major U.S. stock indexes rose sharply.

Powell's speech set a dovish tone for the Fed's policy for the rest of the year, which is one of the critical factors for the Santa Claus Rally in the U.S. stock market this year.

There are two critical economic data recently. One is the November nonfarm payrolls report and unemployment rate data released by the U.S. Bureau of Labor Statistics (BLS) last Friday. One is the CPI data that will be released on December 13th.

In the nonfarm payrolls report released last Friday, the number of nonfarm payroll employment in November increased by 263,000, higher than the expected 200,000 and the previous value of 261,000. That caused the three major stock indexes to plummet after the data release.

However, a better-than-expected nonfarm payrolls report is not all bad news. It also shows that the U.S. economy is still strong, reducing market concerns about recession. Also, a nonfarm payrolls report is not enough to change the Fed's stance. The CPI report for November is more important. A Santa Claus Rally is more likely if we can see cooling inflation in the upcoming CPI data.

The picture above is a candlestick chart of E-mini Nasdaq-100 futures (N.Q.). We can see that the Nasdaq-100 future still exceeds the 5-day moving average. The 5-day moving average is a strong support level, which can have a relatively strong support effect on the Nasdaq index.

We also want a better candlestick pattern to show that a Santa Claus Rally is coming. A long green candlestick was formed after Powell's speech last Wednesday. Since then, a group of small-bodied candlesticks occurred. A relatively perfect rising three methods pattern can be formed if another long green candlestick can appear today and tomorrow. This way, there will be a greater probability of a Santa Claus Rally this year.

Of course, no one can predict the market with complete accuracy. There are many uncertain factors in the market. For example, if the CPI data released on December 13th is bad, showing that U.S. inflation has not cooled at all, it may cause the stock market to plummet. In addition, the Dow Jones Industrial Average has rebounded a lot this round, and it may not have enough momentum to continue to rise. These could all contribute to the absence of a Santa Claus Rally this year.

The U.S. stock market has caused many investors to lose money this year, and everyone hopes to earn some pocket money in the Santa Claus Rally at the end of the year. This article analyzes the market from my views, hoping to help you invest and trade. If you want to know more about stock market analysis and strategies, you can visit Canny Trading.

The U.S. stock markets have entirely diverged. The Dow Jones Index (DJI) is about to enter a technical bull market, breaking through 34,000 points and going up all the way; the Nasdaq Index (IXIC) is getting worse! The Nasdaq is obviously weak in this turn of rebounds and may break down at any time. At the close of the market last Friday, the Dow Jones Index rose 0.45% to 34347.03 points, while the Nasdaq Composite Index fell 0.52% to 11226.36 points. In this round of rebounds, we can see the Dow Jones index's rebound in the chart above is much higher than that of the Nasdaq index in the chart below.

Since the beginning of this year, the Dow Jones Index has just fallen by about 5%, and the Nasdaq has fallen by about 28%. Why is the Dow stronger than the Nasdaq in this bear market? This article will analyze the reasons for this.

The Dow Jones Index is a very authoritative stock index that has existed for a long time. It is an average index of stock prices. It mainly uses some representative companies listed in the United States as objects. Then it calculates the average of the stock prices to obtain the Dow Jones Index. The Dow Jones Index is an index that many people pay close attention to from time to time, especially those who care about the stock market.

The Nasdaq index mainly covers companies in various new technology industries. It is an index of a relatively new era. Although the Nasdaq index is not as widely known as the Dow Jones index, it is also important to judge economic development in the age of continuous development of new technology industries.

In short, the Dow Jones Index mainly contains value stocks (21.8 PE). They are distributed in food, finance, medicine, information technology, and other industries. On the contrary, growth stocks dominate the Nasdaq index with a relatively high valuation (30.5 PE), and almost all of them are technology stocks.

For example, among the constituents of the Dow Jones Index, in addition to technology stocks such as Apple and Microsoft, consumer staples such as McDonald's and Coca-Cola and consumer discretionary such as Nike are value-oriented. These value-oriented stocks tend to be relatively robust in this economic recession. Coca-Cola, held by Buffett, is still hitting new highs this year. But in the Nasdaq index, such value stocks have a smaller weight. After some growth stocks lose the "cheap money" of quantitative easing, the fragile nature of these companies is exposed.

The dollars released by quantitative easing in 2020 and further back in 2008 caused inflation. Now the FED is taking those dollars back by raising interest rates, leading inflation to a reasonable range and ensuring economic growth.

If the money printed by quantitative easing flows into the stock market, which stocks do you prefer to buy? Of course, it is a growth stock with room for imagination and fast performance growth. These stocks rose much more than value stocks during the bull market and fell more during the bear market. Growth stocks have a lot of room for imagination and can tell a story for their high valuation.

Since it is necessary to reevaluate stock prices during the interest rate hike cycle, growth stocks must lead. Therefore, the Nasdaq fell more.

In fact, there is a U.S. ETF that is more valuable than the Dow Jones, iShares Core High Dividend ETF (HDV), which has risen by about 6.5% this year. On the contrary, iShares Semiconductor ETF (SOXX), an ETF with higher growth and valuation than the Nasdaq index, has fallen by 31% this year, confirming our reasoning.

Although growth stocks will fall more during a bear market, The situation will be reversed during a bull market. The Nasdaq index can obtain higher returns than the Dow Jones during a bull market. It will help if you choose the Nasdaq (growth stocks) in a bull market and the Dow (value stocks) in a bear market. The actual situation is more complicated than the method of value stocks and growth stocks I talked about today. If you are interested in my articles, you can visit cannytrading.com.