And Santa is expected to bring President-elect Barack Obama along for the ride. Many investors are optimistic that there will be renewed confidence in the market when the new president takes over on Jan. 20.
"We're looking for a six-week rally," says Kathy Boyle, president of Chapin Hill Advisors in New York. "An Obama-Santa Claus rally."
Of course, market pros say the rally could have a fairly brief shelf life, with pessimism likely to return shortly after Obama takes office amid a flurry of dismal economic news. But in the meantime, the mood is fairly positive.
A handful of factors are precipitating encouragement for the yuletide surge:
- Hundreds of billions in government intervention funds finally taking root and providing some liquidity in the financial sector;
- Obama's plans for infrastructure development are lifting commodities, the building trades and certain parts of the industrials;
- Treasurys are absurdly overbought on flight-to-safety moves and the anemic yields will force investors back into stocks.
As such, investors are lining up to capitalize, with the most popular moves centering on the infrastructure and alternative energy programs planned by the incoming administration, as well as creative bond plays, including exchange-traded funds that reap profits from drops in Treasury prices.
"There is going to be a rally whether it comes before the beginning of the year or after the first of the year," says Michael Cohn, founder and chief strategist at Atlantis Asset Management. "We're going to get what I think is a very nice rally in anticipation of inauguration."
A rally could actually come sooner, Boyle says. That's because the rush into Treasurys is becoming almost irrational—a sign that the worst is either about to pass or is already gone. That sets up a buying opportunity.
"We're getting ready for a rally," she says. "There's definitely blood in the street at this point. You pick up a paper and all you see is more bad news."
Investors Hang Tough
Yet even amidst that terrible news—the latest being the specter of the auto industry collapse—investors haven't been shaken.
Instead, they've been getting ready to capitalize on the Obama administration's goals. Cohn says domestic companies involved in infrastructure improvements will be natural havens for stocks players.
In addition, he likes other Obama-friendly plays like alternative energy and biotech, basic materials and probably natural gas as opposed to oil.
"You've got to stay with American companies on infrastructure spending and alternative energy, because those are going to be the immediate beneficiaries with whatever the new president does," Cohn says. "They're not going to give out contracts to foreign firms."
Investment professionals are exercising some caution about the form the rally will take and are telling clients to be prepared for volatility all the way through the holiday rally, the pre-inauguration period and in fact throughout all of 2009.
In the meantime, the general view seems bullish.
"What I'm really looking for are real fits and starts, a lot of volatility continuing into next year," says Uri Landesman, head of global growth strategies at ING Investment Management. "What I'm hoping for and expecting is the trajectory is going to be up."