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Santa Claus Rallied

Santa Claus Rallied

December 28, 2021
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The stock market rallied strongly last week, with the S&P 500 hitting new all-time highs. This move is significant because it ended the pullback that began on November 22nd. A pullback is a stock market drop between 5% to 10% that occurs, on average, once or twice a year. Although there were no major stock market drops this year, we saw plenty of small to medium sized drops. In 2021 there have been three pullbacks, which is above average, and another three drops close to the magnitude of a pullback.

The end of a pullback is important because it means the relatively small drop is not turning into a large drop. It also means the stock market is making new highs and has momentum to the upside. Currently the S&P 500 is at 4780 and my investor intuition tells me it will break 5000 before the next pullback occurs. The reasons I believe this are: (1) the S&P formed a strong base to move up from at 4740, (2) corporate earnings come out mid-January, and (3) anticipation that the pandemic worries will be greatly reduced in the next few months.

Photograph by: Angel Ceballos

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