Here comes the Santa Claus rally

We could be on the cusp of a Christmas miracle as Main Street optimism overpowers Wall Street pessimism.

By Anthony Mirhaydari Nov 27, 2012 2:14PM

Image, Santa Claus copyright John Lund, JupiterimagesFor weeks, there has been a rather large divergence between growing measures of consumer confidence, strength in the housing market, and buoyant retail spending and increasingly nervous CEOs and investors. 

The latter have been obsessing over two large political unknowns: Will the eurozone get the Greek bailout back on track, and will Washington bungle the "fiscal cliff" negotiations?


So, as executives pulled back on hiring and spending, and traders sent stocks reeling, consumers kept humming along. As a result, with Greece getting another debt reduction deal, a batch of better-than-expected economic data Tuesday has the pessimists scrambling to unwind their bearish bets -- setting the stage for an end-of-year Santa Claus stock market rally.


Assuming, of course, Republicans and Democrats can agree on a short-term deal on the fiscal cliff.



Early Tuesday morning, leaders from the eurozone, the International Monetary Fund, and the European Central Bank -- after holding their third meeting on the Greek bailout/debt sustainability situation in as many weeks -- finally came to an agreement to extend more help to Athens after its conservative government passed painful new austerity measures.


Features include cutting the interest rate on Greek bailout loans, forgoing profits on Greek bonds, and other ideas that are projected to cut Greece's debt burden to below 110% of GDP in 2022.


While this won't solve all of Greece's problems -- it still needs to get its economy growing again and fend off ongoing political turbulence -- it's a step in the right direction and removes a major source of uncertainty in the markets.


This clears one of the two major hurdles we faced heading into the end of the year. Now, we just need a short-term extension of the "fiscal cliff" here at home so stocks and other risky assets can blast higher into 2013 fueled by a likely QE4 Treasury purchase stimulus out of the Federal Reserve in a few weeks.


Also contributing has been a bounce back in the economic data, which led Goldman Sachs to increase its Q4 GDP growth estimate to 1.8% from 1.4% today. Durable goods orders beat expectations in October. Manufacturing in the Richmond region rebounded in November. Home prices are steadily rising in the Case-Schiller index, up another 0.4% in September. And the Conference Board reported its consumer confidence index hits its highest mark since February 2008.


What's driving this? JPMorgan economists note that finished inventory levels have fallen to their lowest level since the current growth slowdown started early last year. In other words, when CEOs get nervous, they can try to insulate their businesses by doing things like pulling back on new orders. But if things don't fall off a cliff, and customers keep coming in, they will eventually need to replenish their warehouses.


So, somewhat begrudgingly, managers are restocking their shelves.


From a technical perspective, things are still looking good. The Nasdaq, after months in the doldrums, is finally enjoying some relative strength against the overall market. Save for a brief spell back in August, this hasn't been seen since March. Also, hedge fund types, based on the latest data from the Commodity Futures Trading Commission, are busily covering their most aggressive net short positioning against stocks in years and moving long. And options traders are feeling more confident, market breadth is improving, and cyclical economically-sensitive stocks are leading the way higher.



I continue to recommend my clients position for additional gains with a focus on energy and commodities. Ideas include Tesoro (TSO), up more than 10% since I added it to my Edge Letter Sample Portfolio last week. The ProShares UltraSilver (AGQ) is up 9.2% since I added it on November 9.


Disclosure: Anthony has recommended TSO and AGQ to his clients.


Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


Nov 27, 2012 2:36PM
Sometimes Santa Claus leaves you a lump of coal.
Nov 27, 2012 3:23PM
The Fiscal Cliff cannot be fixed.  It's a giant hole that's been dug over a period of many years - like the grand canyon.  It can't be filled in.  So all you can do is drive by it, stuck your head out of the window and say, "Wow, what a big hole" and then keep on driving past it while it sits there getting larger and deeper every day.
Nov 27, 2012 4:35PM

I think this guy is schizophrenic.  One week it's everything is coming up rosy.  The next week it's OMG the end is near.  I read his articles just to amuse myself.


I agree with previous posts that there has been no recovery.  We just keep slipping down into the abyss.  No problems have been solved or even attempts to do so.  All we are doing is stealing from our future to keep a sinking ship afloat.  When we can't rob anyone any longer then it will be over and much like the housing bubble the "experts" will say they didn't see it coming.


The Eurozone is in the tank.  And so are we.

Nov 27, 2012 2:59PM
If we keep telling ourselves that things are getting better....will they? The Greek debacle may be temporarily eased, but don't think for a minute the clowns in Washington can do anything constructive before the next session of congress; and it's doubtful they'll do anything constructive then. I think "strongly reserved optimism" is a good position in the market right now. Santa may leave a lump of coal or worse yet, he may ask for a bailout.
Nov 27, 2012 3:21PM
Anthony what a beautiful dream. It is just like Santa Claus himself.
Nov 27, 2012 3:45PM
For all the charts and metrics and stats.....the underlying driving force is a growth rate that is nearly stagnant and unemployment numbers that are a ball-and-chain on consumer growth.  How can Anthony so conveniently overlook the most basic fundamentals that drive business success?
Nov 27, 2012 4:31PM

What planet is this guy from? He, like Wall Street and consumers, is completely and hoplessly uncoupled ffrom reality. Santa Claus rally? Consumers are IDIOTS!! They have believed columns like HIS that we are in a.....recovery. WTF!!!

Nov 27, 2012 4:15PM
There is no Rally ! Consumer Confidence is in the toilet no matter how you spin it ! OFF THE CLIFF WE GO ! Then there is this news flash ! Buffet endorses Jamie Dimon for Treasury Secretary ! The Fox in the Hen House ! The head of the Criminal Banking Cartel with access to our tax dollars !  Great choice  they will  take billions ! ABOVE THE LAW !  (TO BIG TO FAIL) !
Nov 27, 2012 4:02PM
This is a waste, they being congress and the community organizer Barry Obama will kick the can and taxes will be going up,.. this will be the start of something special on the American people higher and higher taxes we will turn into Greece.
Nov 27, 2012 4:31PM
avatar you really think that we are idiots and not capbable of seeing and thinking for ourselves?  Why in the world do we need people (experts) like you?


We see through the eye of a different lense and what I see is 'scary'.....not optomistic.....and I have a really good job.


So do us all a favor.....go away with your rah rah rah's.......They are not needed.


Incredible.....time to register with Yahoo.

Nov 27, 2012 2:54PM
short-term, anything can happen... 
Nov 27, 2012 5:10PM
Face it folks, people like Anthony live in a different reality than most of us. They live in a world where it is a good idea to take more from producers, give the government agencies their share, and then distribute the remainder to those who can't or won't work. "They" are the new majority. Hoard your long-term food and fresh water supplies and arm yourselves. Not for the zombies but for the day when "They" run out of our money.
Nov 27, 2012 3:09PM
Can also just print some US$ 15 trillion and pay up the debt... 
Nov 27, 2012 4:36PM
Just like Santa Claus, the economy & the stock market is a figment of imagination.  And last time I checked, Obama is no Rudolph.  You'll be sorry if Obama slides down your chimney, because the cookies & milk will be gone and there won't be any presents left under your tree.  Plus, he'll be wearing your Christmas stockings when he leaves.
Nov 27, 2012 4:53PM
I'll believe things ar getting better when our GDP grows 5% and labor participation rate climbs 1%age point.
Nov 27, 2012 4:01PM
Don't this guy pay attention to index readings?  You would think the article would be published on  a day that the market rises.  Not that better timing would make the column more believable or less laughable.
Nov 27, 2012 2:54PM

"WASHINGTON (AP) - U.S. consumer confidence rose this month to its highest level in almost five years, helped by a better outlook for hiring over the next six months. The Conference Board said Tuesday that its consumer confidence index rose to 73.7 in November from 73.1 in October. Both are the best readings since February 2008. The index is still below the level of 90 that is consistent with a healthy economy. It last reached that point in December 2007, the first month of the Great Recession. But the index has increased from the all-time low of 25.3 touched in February 2009.

Higher consumer confidence could translate into a more robust holiday shopping season and stronger economic growth. Consumer spending drives nearly 70 percent of economic activity."

Who actually buys this crap? I'd bet that we have whole states minus 1% that have zero faith in the economy, our leaders, our finance and law sectors. We are plagued-ugly with administrator cancer and shiftless deadbeats high on corruption. No more surveys please... I'll take genuine recovery for $1 quadrillion, Alec.

Nov 27, 2012 4:17PM

Only if you have been Baaaaaad, DHYourBrth...


But if you are invested in Coal like us..Comnads is right, we have already been "lumped" by Obunka. 

Nov 27, 2012 5:48PM

Anthony may be a little right.   The Fed is going to do a QE4.  The congress will kick the can into 2013 (if they can agree on that).  Those two events alone will cause the market to go up just like it's done before.  Don't fight the Fed.   Whether it is real and will last is another matter but if you are good at timing the market, there will be a bump.  The sell-off will come when Congress actually starts fixing things.....if that ever happens.  It's in their interest to string it out as long as possible because every fix is gonna be a bitter pill and they don't want to swallow them all at once.   In the meantime, all the institutions are going to get tons of new cash and it has to go somewhere.  


I still have a sense that Congress maybe wants us to go over the cliff.  That way they can let all the unpopular stuff get passed automatically and they can all say they didn't vote for it.  Then they can come back at their leisure and fix things and look like heroes.  If I were a career politician and I wanted to keep my job that sure looks like a clean way out to me.  Plausible deniability.

Nov 27, 2012 5:59PM

Retailers must be blind; the large numbers of desperate shoppers on black Friday are because of the weak jobs market. Most people are just trying to salvage a small part of the holidays. No good jobs equal no money to spend on the holidays, and black Friday is the best opportunity to get a good deal and maybe at least have something under the tree. The large numbers signify the desperation of the families in this county. Next headline after Christmas, consumer sales started out strong on black Friday but ended the holiday season flat or below spending expectations.

The desperation and lines on black Friday is making America look more and more like the old Soviet Union during the days of rationing when 500 people would line up for 3 pairs of shoes. Sad very sad.   

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[BRIEFING.COM] The stock market welcomed the new trading week with a mixed session that saw relative strength among large-cap stocks, while high-beta names underperformed. The Dow Jones Industrial Average (+0.3%) and S&P 500 (-0.1%) finished near their flat lines, while the Nasdaq Composite and Russell 2000 both lost 1.1%.

Equities began the day on a cautious note amid continued concerns regarding the strength of the global economy. Over the weekend, China reported its first decline ... More


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