Another Santa Claus rally is coming -- and stocks will grow another 3% before year’s end, Fundstrat’s Tom Lee says
December is typically a great month for the stock market — it had never been the worst month for stock performance in a year until 2018, when the S&P 500 tumbled more than 9% in December.
This year, Tom Lee, head of research at Fundstrat Global Advisors, predicts U.S. stocks will benefit from another Santa Claus rally — this time without all the ugliness in the run-up to Christmas. “We are in the final eight weeks of 2019, and roughly the start of the Santa Claus rally,” he wrote in a Thursday note to clients. He added that “this effect [has been] very strong in the last 20 years.”
In an interview with MarketWatch, Lee said that he is confident another leg higher for stocks is coming, despite flat earnings growth for much of 2019, because the market has yet to catch up to the rapid earnings growth seen in 2018. “For the last two years, earnings have grown faster than price. Since 2017, earnings have grown 11% per year and the market is up only 7% per year,” he said. “What’s happening now is a catch-up in stock prices.
“I don’t think the trade war has to be resolved to support the rally,” he said. “The reason we don’t think that’s necessary, is that companies have shown in the face of this trade uncertainty that they’ve been able to maintain margins and outperform expectations. It’s a deterioration of the situation that would hurt equities, but not maintaining the status quo.”
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