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.

167Comments
Nov 27, 2012 4:36PM
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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 4:35PM
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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 4:31PM
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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 4:31PM
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Anthony....do 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 4:30PM
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Think a few days back, I was singing "Here comes Santa Claus,here comes Santa Claus..."

Get your bets down...."Here he comes...Cathy's Clown.." or is it Michelle's??

 

Don't know about ZOOMING to 15,000, but I'll just be happy cruising to it.

Thanks for being an Optimist. 

Nov 27, 2012 4:23PM
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Great! More garbage to throw in the dump, more pollution to pump into the air, water and food.
Someday stupid humans will wake up and realize that the stupid toys they play with are killing them and their one and only home. "Planet Garbage."

Nov 27, 2012 4:23PM
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V_L....Don't believe England is on the Euro..They still sell stuff by the Pound and Shillings...

 

Jeb...Drive away fast from that Canyon hole, Spin around 3 times and the Fiscal Cliff will be gone.

Nov 27, 2012 4:17PM
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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 4:15PM
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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 4:13PM
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Is it time to jump into this fray yet....Has the name-calling started yet......??
Nov 27, 2012 4:02PM
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These people who run down the market should just ignore it.The fiscal cliff will be fixed,

housing is getting better every month and the underpinnings of the market are constantly

improving.If you`re not in the market before they fix the fiscal cliff you`re a fool.When the

market ZOOMS past 15,000 you`ll feel like you lost the winning ticket to the POWERBALL.

Nov 27, 2012 4:02PM
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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 4:01PM
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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 3:45PM
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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 3:23PM
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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 3:21PM
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Anthony what a beautiful dream. It is just like Santa Claus himself.
Nov 27, 2012 3:09PM
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Can also just print some US$ 15 trillion and pay up the debt... 
Nov 27, 2012 3:00PM
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When they fix this fiscal cliff watch the Dow ZOOM to 15,000.
Nov 27, 2012 2:59PM
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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 2:59PM
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Want a rally? just replace Geithner by Paul Krugman... 
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