Will Jolly Old Saint Nick Visit the Stock Market This Holiday Season?

Christmas may be over, but the right jolly old elf might pay another visit as the year turns, which he has done most of the time for decades. That’s the cheery season’s greeting from Ryan Detrick, chief market strategist for LPL Financial and noted investment statistician.

The so-called Santa Claus rally spans the last five trading days of the year and the first two of the new year. That means it starts today, Monday Dec. 27, runs through this coming Friday (the market is open New Year’s Eve day), and ends Tuesday Jan. 4.

The market has been iffy the past couple of months. December is most often the strongest month of the year. But what few recognize is that most of December’s gains occur in the second half of the month, Detrick observed in a research note.

The S&P 500 was down slightly in November, minus 0.83%, as the onset of the Omicron variant and inflation’s surge dampened spirits. Thus far in December, amid hope that the new strain won’t prove to be as dangerous as previous coronavirus versions, the broad-market index is up 3.5%. And, in fact, 2021 overall has been a good year, boasting a 25.8% increase.

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The last times this seven-day span was negative was 2014 and 2015. Before that, it showed red ink in 2007, as the financial crisis began to stir. Investors do look forward to a belated holiday gift. Should they get a lump of coal, that’s not good going forward.

“If Santa should fail to call, bears may come to Broad and Wall,” market savant Yale Hirsch once wrote, referring to the location of the New York Stock Exchange. The founder of the Stock Trader’s Almanac (now put out by his son, Jeffrey), Hirsch first noticed the phenomenon in 1972.

Statistically speaking, these seven trading days are the most likely to be a winning combination than any other similar period. Over this century’s past two decades, they were positive 78.9% of the time, Detrick calculated. Average advance: 1.33%.

“Why are these seven days so strong?” Detrick asked. “Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books—or the holiday spirit—the bottom line is that bulls tend to believe in Santa.”

Of the five times this century that the Santa-centric December–January stretch has been negative, January has been, too. Consider that “the bear markets of 2000 and 2008 both took place after one of the rare instances that Santa failed to show,” Detrick wrote. “Should this seasonally strong period miss the mark, it could be a warning sign.”

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Tags: Bear Market, LPL Financial, Omicron, Pandemic, Ryan Detrick, S&P 500, Santa Claus Rally, Stocks, Yale Hirsh

Insurance firms are planning to increase their investment risk exposure in order to boost returns, and sustainability is “front and center” of their investment strategies, according to BlackRock’s annual “Global Insurance Report.”

The report is based on survey responses from 362 senior insurance executives in 26 markets, at firms that manage $27 trillion worth of assets, which BlackRock says represents approximately two-thirds of the worldwide insurance industry.

The survey found that 95% of respondents believe climate risk will have a “significant” or “very significant” impact on portfolio construction and strategic asset allocation over the next two years. Black Rock said insurers are “embedding sustainability ever more deeply into their investment selection processes,” and expect to increase their allocations to sustainable investments by nearly one-third over the next two years.

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“An overwhelming majority of insurers view climate risk as investment risk, and are positioning portfolios to mitigate the risks and capitalize on the transformational opportunities presented by the transition to a net-zero economy,” Charles Hatami, BlackRock’s global head of the financial institutions group and financial markets advisory, said in a statement. “Insurers’ growing focus on sustainability should be a clarion call for the investment industry.”

According to the report, 60% of insurers expect to increase their investment risk over the next two years and are reallocating out of core fixed income and into private assets. BlackRock noted that this the highest level since it started tracking the information in 2015.

“This increase appears to be out of necessity,” said the report, “as the ongoing low interest rate regime continues to press insurers to consider investments in alternatives and higher-yielding fixed-income assets in search of income.”

Insurers have their eyes on private markets in particular due to their diversification and high return potential. Insurers said they expect their average allocation to private market investments will rise to 14% of their total portfolio by 2023, compared with approximately 11% today. And no insurer said they expect to have a strategic allocation to private markets of less than 5%.

In particular, BlackRock said that commercial real estate, private equity, and direct lending to small- and medium-sized enterprises stand to benefit from insurance industry capital. Survey respondents added that they expect to decrease their allocations to infrastructure debt over the coming years. “Insurers have allocated significant capital to such strategies over the years,” said the report. “In our view, this finding underlines insurers’ appetite to deploy committed capital before further increasing their allocation in relevant strategies.”

The report also said that as insurers increase their risk appetite, liquidity will remain a major priority, as 41% of respondents said they are looking to increase their cash allocations over the coming year.

Additionally, BlackRock said the impact of the pandemic and the desire to meet certain net-zero goals have also increased digital transformation as a priority for insurers. The survey found that more than 40% of respondents said they want to increase their investment in technology that integrates climate risk and metrics.