Wall Street hopes to see another “Santa Claus rally” in the week ahead, when stocks traditionally rise as investors wrap up the year, amid growing optimism and a spectacular monthly rally.
The market remained on a tear this week, on track to make this month’s gains the strongest since 1991, according to analysts.
The past week, cut short by the long Christmas weekend, was marked by slow and range-bound trading.
Even Thursday’s slew of data that reaffirmed that the economy was slowly recovering made a small impact.
The data showed new modest improvements in jobless claims and the struggling housing market as well as a rise in consumer spending and earning last month that made traders particularly happy amid a busy holiday shopping season.
The previous day, the US Commerce Department revised slightly upwards the US growth for the third quarter, a little less than most expectations, but still offering optimism.
“Thursday’s data were mixed, but the economy appears to be ending the year on a positive note; real GDP is tracking above our forecast for a 3 percent annualized gain,” Ryan Sweet of Moody’s Analytics said.
In the week to Thursday, the Dow Jones Industrial Average rose 0.70 percent to 11,573.49, in the fourth straight week of gains that saw it return to levels last seen in August 2008.
Since the start of the month, the Dow index has gained 5.16 percent, positioning it for the strongest December since 1991.
The broader S&P 500 index added 1.03 percent to 1,256.77 points.
The technology-rich NASDAQ composite index rose 0.86 percent to 2,665.60 points, its highest level in three years.
The week ahead, also shortened due to the New Year’s holiday on Friday, looks set to remain in low gear as many traders go on holiday and with a report on consumer confidence and the weekly jobless claims the only major indicators planned.
“Going into next week it is going to be a very slow week, we are going to sit and wait until we see what these December retail sales really suggest,” Lindsey Piegza of FTN Financial said.
The robust gains on Wall Street in recent weeks were largely the result of investors seeking to improve their portfolios ahead of the year end as the economy shows signs of improvement, analyst Marc Pado of Cantor Fitzgerald said.
“When the market refused to give ground, and jumped up, it caught a lot of fund managers by surprise and forced them to chase performance,” Pado said.
He nevertheless warned that the spectacular rally of recent weeks could change direction next month.
“There is no question that the market is overbought so we are due for a correction, the question is when ... The pressures on the market are related to the calendar more than to the fundamentals,” Pado said.
Financial stocks were the bulwark of this week’s gains, with Bank of American rising 3.9 percent, Wells Fargo up 3.4 percent and JPMorgan soaring 6.1 percent.