Historically, Wall Street tends to perform strongly in December. Specifically, the S&P 500 has exhibited positive returns in December 74% of the time since 1950, per LPL, which is more frequent than any other month. That number rises to 83% in presidential election years, according to Bank of America, as quoted on Yahoo Finance. But U.S. stocks may defy the seasonal trend this time around.
Trump’s victory in the U.S. Presidential election in November and the subsequent stock market rally on hopes of fiscal reflation seem to be easing now on less-dovish Fed cues. The Dow Jones Industrial Average ended down 2.3% last week, despite breaking a 10-day losing streak. Meanwhile, the Nasdaq Composite dropped 1.8%, and the S&P 500 fell 2%.
While markets gained ground on the final trading day last week, it wasn't enough to offset the pressures of a potential government shutdown and hawkish Fed signals. Key U.S. equity indexes have been experiencing a seesaw ride this week.
This kind of market sentiment might make Christmas a little dull this year, curbing the natural progression of the end-of-season ascent, commonly known as the Santa Clause rally. Santa Claus rally refers to the jump in stock prices in the week between Christmas and New Year's Day.
There are several factors behind this seasonal surge including tax considerations, happiness around Wall Street, people investing their Christmas bonuses on stocks. Let’s find out the concerns this year that could dampen Wall Street's mood as the year comes to a close.
A Season of Challenges for Investors
As the holidays approach, many investors may face investing hurdles. Challenges range from political turbulence in Washington, where President-elect Donald Trump and Elon Musk are exerting their political influence, to the Federal Reserve adopting a less dovish stance on interest rates.
The Fed now projects just two rate cuts in 2025, down from earlier expectations of four, reinforcing a “higher for longer” policy approach that could weigh on the year’s final trading days.
Fed’s Shifting Tone
The downturn in the equity market from early December's highs stemmed from a cautious outlook by the Federal Reserve. Last week, the Fed enacted its third successive rate cut this year but signaled a slower pace for 2025.
Friday’s inflation data, excluding food and energy, showed monthly price increases moderating in November but remaining sticky. Risks of inflationary pressure in the new Trump administration also remain a concern.
Cleveland Fed President Beth Hammack dissented against the recent rate cut, arguing that inflation still requires close monitoring. She emphasized maintaining a policy near a neutral stance until inflation aligns with the 2% objective.
Lazard Asset Management strategist David Alcaly noted that hawkish tones stem partly from fears of inflationary policies, like new tariffs, as quoted on Yahoo Finance. Chris Rupkey, chief economist at FWDBONDS, warned that Trump’s spending, tax cuts, and tariffs could hinder inflation's decline, leading to fewer anticipated rate cuts in 2025.
What About Low P/E Momentum ETFs?
Due to above-mentioned worries, we suggest tipping toes into the momentum ETFs with a relatively low P/E. Momentum investing is an intriguing idea for those seeking higher returns in a short spell. Momentum investing looks to reflect profits from buying stocks that are sizzling on the market
Below we highlight three momentum stocks and exchange-traded funds (ETFs) with a low P/E to watch out for in the coming trading sessions. The below-mentioned ETFs and stocks have a P/E more or less the 29.56 times P/E of SPY.
The underlying MSCI USA IMI Consumer Discretionary 25/50 Index represents the performance of the consumer discretionary sector in the U.S. equity market.
U.S. Global Jets ETF JETS – P/E: 14.26X; One-Month Return: +5.0%
The underlying U.S. Global Jets Index tracks the performance of Airline Companies across the globe with an emphasis on domestic passenger airlines (read: Travel ETFs Beat S&P 500 in a Month: Here's Why?).
The underlying Nasdaq Innovators Completion Cap Index consists of 200 small-cap companies with the most valuable patent portfolios relative to their total market value.
Columbia Semiconductor and Technology ETF SEMI – P/E: 21.94X; One-Month Return: +5.1%
The Columbia Semiconductor and Technology ETF seeks long-term capital appreciation by investing in an active ETF that focuses on semiconductor and semiconductor-related businesses that may be poised to benefit from technology innovation and disruption.
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