Santa has come early again this year, Wells Fargo says

Investing.com -- The annual speculation about a potential "Santa Claus rally" has already emerged, even though we are very early in December.

This rally, which traditionally refers to the stock market’s bullish performance during the week between Christmas and New Year’s Day, garners attention regardless of how equities have fared during the year, according to Scott Wren, Wells Fargo (NYSE:WFC ) Senior Global Market Strategist.

Wren points out that the S&P 500 index (SPX) has already delivered exceptional performance in 2024, gaining nearly 27% year-to-date and more than 16% since August alone. The index has set over 50 record closing highs.

“So, one could rationally make the argument that Santa has come early this year,” Wren said in a note. “And that has certainly happened quite often in the past.”

December, according to the Stock Trader’s Almanac, is the third-strongest month for equities over the past 70 years. Moreover, the November-through-January period has traditionally been favorable for stock market performance.

“We believe positive momentum and better-than-expected economic news suggest that now is not the time to try and step in front of what is likely to be a gift-laden sleigh when Santa eventually comes to town later this month,” the strategist said.

“But that doesn’t mean there are not portfolio adjustments that could be made,” he added.

Looking ahead, Wren highlights opportunities in sectors such as Industrials, Communication Services, Financials , and Energy, advocating for disciplined buying on market pullbacks through the remainder of 2024 and into 2025.

To fund these increased allocations, he advises trimming exposure to Information Technology and Consumer Discretionary sectors back to neutral weightings in line with their representation in the SPX. Moreover, he recommends underweighting Utilities.

"Do we look for higher stock prices in the coming 12 months? The short answer is yes," Wren states, projecting the SPX to reach the 6500 to 6700 range by the end of 2025.

He also anticipates two rate cuts from the Federal Reserve over the next year, with broader risk opportunities emerging in 2025.

“A further rally could develop from here but by most accounts it appears that Santa has come early again this year. Be selective with sectors and timing when allocating new funds to equities,” Wren concludes.

Source: Investing.com