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Will the year-end rally really be more of a St. Nicholas’ Day rally?

Munsbach, 21 November 2019 – Similar to the ebb and flow of the tide, the world's stock markets are also subject to certain recurring fluctuations. While the winter and spring months are regarded as typical bull months, investors tend to fear summer and autumn. This is because many severe setbacks, such as 1987’s Black Monday or September 11 2001, occurred in autumn. As stock markets were often able to recover from these setbacks in November or December, the myth of the year-end rally was born. However, strictly speaking, it is more of a December rally than a year-end rally. At the actual end of the year, i.e. between Christmas and New Year, the holiday season results in a stock market turnover that is too weak to stimulate the markets.

Now that we are approaching the end of 2019, the million-dollar question is will there be a year-end rally or not? The answer is simple: we are actually already in the middle of one. During the last four weeks, all indices have risen sharply and, given the high level of investor pessimism, the stock markets really picked up from mid-September, showing impressive rising prices. At the same time, sentiment has improved significantly and is currently painting an optimistic picture. As too much priced in optimism is known to be detrimental for the markets, it is unlikely that we will see a continuation of the bull market at this pace. Therefore, the chances of a ‘St. Nicholas’ Day’ rally are better than those of a year-end rally. At the end of the year, the stock markets need consolidation, otherwise they will overheat and we could be facing a correction in January 2020. That is why we believe that a ‘St Nicholas’ Day rally’ is more likely than a year-end rally.