It seems like a typical winter week on Wall Street, with investors’ worried minds in a flurry, but the Fed’s inaction is fueling an unexpected surge in the market providing a helpful nudge to investors. The Santa Rally, as it is commonly known, is the “Christmas spirit” of stock market trade.
It refers to the seasonality of the stock market and the phenomenon of stocks making unusual gains in December. This year the Santa Rally started earlier than expected, with the Fed stating it would wait and watch out for the larger economic trends – which has given investors the leeway to think something that’s been ignored for a while—the value stock.
For the uninitiated, value stocks are those, which have been oversold—their share prices are depressed and the outlook doesn’t look as rosy as it used to. Often, these stocks are not in the public’s awareness, meaning the potential upside is huge, perhaps even more than that of a regular stock. But don’t mistake it for sure-shot gains; the only way to profit is to understand when to buy or sell these stocks.
Right now, the Fed’s unexpected decision has been a positive sign for the economy and investors alike—and it’s inspired many to take to the market thinking value.
Sedentary economic conditions also boosted investor confidence sentiment when it comes to value stocks. After all, when everyone is on the same side just waiting, there will inevitably be those with a different view—those bargain hunters looking to pick up those overlooked stocks.
Analysts are suggesting that value stocks will outperform in the near-term despite some risk. While these stocks are subjected to the overall volatility that affects the markets, they still may offer a better return than most other class of stocks.
The Santa Rally gives investors and the economy a much needed boost as the year ends, and it might just set the tone for the New Year. Market watchers are of the opinion that this rally is likely to create a longer-term momentum.
With the market responding well to these value stocks—and the Fed supporting the market—it’s an opportunity investors should not miss out on. 2020 could just end with the Santa Rally, a gift of value stocks, mining that unexplored vein of opportunity.