Rebecca's Swiss Perspective - December 2023 - Will the “Santa Run” bring us good or bad news for 2024?

Photo by cottonbro studio

This year has been a year of waiting and questioning of whether or not there will be a global recession.

Market growth has been singularly lopsided: 15 stocks have ruled the world and given us 76% performance whereas the rest of the broader index components have been flat, making the recovery of 2023 very skewed to AI and specific hi-tech gems. Any rationale investor recognizes this is not sustainable and the direction of the market, though pleasant to see, must be taken with a pinch of reality; this is by no means a broad recovery.

negative impacts of adverse market moves.

Today, we will look to the year ahead to examine how investors should act when faced with the challenges presented by the uncertain timing and depth of a potential recession and the extent of its impact.

Firstly, what is the “Santa run” in the financial markets?

The term "Santa Claus Rally" refers to a phenomenon where the stock market experiences a rally throughout December and the first two trading days of January. This period is sometimes associated with increased optimism and positive sentiment among investors.

Will the optimism last into 2024?

Optimism may remain if we see what is termed a soft landing “where there is a small correction and the economy bounces back without significant unemployment”. The key requirement for this to happen is a resilient job market.

Taking a look at this indicator in December 2023, we are seeing unemployment is rising and nearing the closely watched 'Sahm rule' threshold; historically this indicates a recession is underway when the three-month rolling average of the unemployment rate rises half a point above the low of the prior 12 months.  And in 2023 we are just below this threshold in the US economy. We also see in the chart below, which considers unemployment and past recessions, that warning signs a recession is near are coming in loud and clear: