Yes, there is a Santa Claus stock market rally
By Eric Wahlgren
NEW YORK, Dec 3 (Reuters) - Santa's coming to Wall Street, but he's probably going to be late, thanks to that Grinch of a computer bug known as Y2K.
Market watchers are still expecting the so-called Santa Claus rally, which traditionally punches up the market around the turn of the year like a squirt of rum in eggnog.
But this year the Y2K problem may scare investors away from stocks until they get proof the year 2000 is not some synonym for a severe global downturn.
``Take away Y2K and there would be no problem,' said Yale Hirsch, editor of the Stock Trader's Almanac. ``We would probably have a normal Santa Claus rally. But look at what happened 1000 years ago. We got the Dark Ages because of the Y1K problem.'
SANTA NO LONGER COMES EVERY YEAR TO WALL STREET
In the past, the end of the year has often brought a holiday run-up as Americans reinvest capital gains and put their salary bonuses and gift money to work in the stock market.
Thanks to the rally, the Standard and Poor's 500 index (^SPX - news) on average has gained 1.6 percent in the seven days
spanning the last five days of the year and the first two days in January, according to Hirsch's research.
Yet, in the eight years leading up to 1997, Santa visited only three times, Hirsch said. The market in the other five years on average managed, at best, mediocre gains during the holiday season as the period followed bear markets. Or, these lackluster periods came when investors were confident they could buy stocks more cheaply in the new year, Hirsch said.
``If Santa Claus should fail to call, bears may come to Broad and Wall,' goes the time-worn couplet, which refers to the New York Stock Exchange's street corner in downtown Manhattan.
Despite the weakening in the tendency for there to be a Santa Claus rally, many Wall Streeters are banking on a run-up this year. The market pulled back a bit in late November, setting the stage for a stock party around year's end, traders said.
HOLIDAY RALLY SEEN COMING AFTER NEW YEAR
The only thing is, this year Santa will probably be a little late.
Most see the holiday rally delayed by a few days until after clocks tick past midnight Jan. 1, 2000 and investors realize they can still pick up the phone, or fire up their computers to make a trade.
Officials are increasingly confident that jumbo jets will not fall from the sky and that the computer industry -- one that has treated investors grandly in terms of stock appreciation -- will not see its products crash because of the digital rollover.
``Once a consensus realizes that the world is not coming to an end in January 2000, investors will want back into the market,' said Thomas Galvin, Donaldson Lufkin & Jenrette's chief investment officer.
MORE INTREPID INVESTORS ARE BUYING AHEAD OF Y2K
There are signs, however, that some risk-friendly investors have already shrugged off concerns about Y2K and are loading up on stocks in their portfolios ahead of the new century.
According to Charles Biderman, president of Mutual Fund Trim Tabs, cash has begun to pour into equity funds after trickling in for the first half of the year.
In the last two months, about $25 billion on an average monthly basis has flowed into these funds, up from about $10 billion a month in the summer, Biderman said.
``The assumption is that, if everybody is accurate, Y2K does not mean the end of the world, and why keep money aside that you are going to put in anyway?' said Biderman. ``Look how well the market is doing.'
The market in general has been on a tear in the last few months, with the Nasdaq up a whopping 53 percent year to date on Dec. 2. The Dow Jones industrial average, meanwhile, had climbed a more modest but still respectable 20 percent.
Feeling pulled in both directions are mutual fund managers, who want to deliver fat returns but want to minimize risk if Y2K causes problems.
``If there is no Y2K problem, those managers who have retained a large cash position are going to be underperforming,' said Robert Adler, president of AMG Data Services. ``It is a difficult position for them to take. Do you remain fully invested and take advantage of the market, or not?'
Depending on how late the Santa Claus rally comes, it may become confused with the ``January Effect' -- market-boosting seasonal factors such as the repurchasing after 30 days of stocks for tax write-offs that were sold as losers late in the preceding year.
But at least one Wall Streeter said whatever gains the market makes around the new year could later be undermined by problems stemming from Y2K not in the United States but abroad.
``We may get into the beginning of the year OK, but then we'll get the horror stories out of Asia, South America and in underveloped countries,' said Joseph Barthel, chief investment strategist at Fahnestock & Co. in Great Neck, N.Y. |
