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Santa Claus Rally Sets In: 4 Stocks From Top Sectors to Play
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Santa Claus landed on Wall Street this year earlier than scheduled as the key equity indexes jumped last week. Thanks to the Federal Reserve's dovish stance and tone, U.S. stocks had an amazing week, as they closed their longest winning streak since 2017. The stocks are now on their way for the eighth weekly win. The Dow Jones hit its fifth straight record yesterday.
The 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 surge, including “tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week,” as per Investopedia.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Are We Primed for a Super-Strong Santa Rally This Year?
With just a handful of days remaining for Christmas and sentiments still strong (in fact, a renewed optimism is playing a key role in pushing Wall Street higher thanks to a less-hawkish Fed), it looks like such a solid urge is going to continue.
Wall Street's upbeat outlook on interest rate cuts is encouraging brokers to make more optimistic calls on stocks, too. Goldman Sachs now sees the S&P 500 closing out 2024 at 5,100, as quoted on Yahoo Finance. The broker house’s initial outlook was a level of 4,700 by 2024-end.
The financial markets celebrated the Federal Reserve's change in its outlook last week. The central bank hinted at a higher number of anticipated rate cuts (by about 75 bps) in 2024 than previously predicted and acknowledged the effectiveness of its anti-inflation campaign.
"Above-consensus retail sales growth further evidenced economic resilience, while lower-than-expected jobless claims affirmed that the labor market remains healthy," Goldman Sachs' equity strategy team led by David Kostin wrote in a research note over the weekend, as quoted on Yahoo Finance.
Against this backdrop, we have highlighted a few top-ranked stocks that come from top-ranked sectors. These stocks are likely to gain from Santa Rally 2023.
Utilities – Zacks Sector Rank #1
Utility companies are often debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment.
Otter Tail – OTTER TAIL's primary business is the production, transmission, distribution and sale of electric energy. The stock has a Zacks Rank #1 (Strong Buy). OTTR belongs to a top-ranked Zacks Industry (top 23%).
Construction – Zacks Sector Rank #2
U.S. single-family homebuilding jumped to more than a 1-1/2-year high in November and could gain further momentum on the back of falling mortgage rates and incentives from builders likely to draw potential buyers back into the housing market. The Fed’s potential easy money policy from 2024 has set the momentum in the construction sector.
Rollins – Rollins provides pest and termite control services to residential and commercial customers. The company offers protection against termite damage, insects and rodents to homes and businesses, including food manufacturers, food service establishments, hotels, transportation companies and retailers. The stock has a Zacks Rank #2 (Buy). ROL comes from a top-ranked Zacks Industry (top 1%).
Medical – Zacks Sector Rank #2
The sector boasts a safe-haven status amid market crisis. The tensions in the Middle East and chances of an economic slowdown next year may cause global markets to be a little volatile. Against this backdrop, medical/healthcare investing makes sense. The job growth in the sector remains decent.
DaVita – It is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end-stage renal disease. The stock has a Zacks Rank #1. DVA hails from a top-ranked Zacks Industry (top 18%).
Technology – Zacks Rank #4
The areas of blockchain, digital technology and data sharing have surged this year courtesy of the space’s inherent strength and a less-hawkish Fed. With the Fed likely to be more benevolent in 2024 and the strength of data sharing and AI space remaining intact, Internet - Software and Services stocks should continue to do well in 2024.
NetEase– NetEase is an Internet technology company engaged in the development of applications, services and other technologies for the Internet in China. The stock has a Zacks Rank #1. NTES comes from a top-ranked Zacks Industry (top 5%).
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Santa Claus Rally Sets In: 4 Stocks From Top Sectors to Play
Santa Claus landed on Wall Street this year earlier than scheduled as the key equity indexes jumped last week. Thanks to the Federal Reserve's dovish stance and tone, U.S. stocks had an amazing week, as they closed their longest winning streak since 2017. The stocks are now on their way for the eighth weekly win. The Dow Jones hit its fifth straight record yesterday.
We expect four top-ranked stocks come from top-ranked sectors — Otter Tail (OTTR - Free Report) , Rollins (ROL - Free Report) , DaVita (DVA - Free Report) and NetEase (NTES - Free Report) — to realize the Fed-induced Santa Claus rally in 2023.You can see the complete list of today’s Zacks #1 Rank stocks here.
What is Santa Rally?
The 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 surge, including “tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week,” as per Investopedia.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Are We Primed for a Super-Strong Santa Rally This Year?
With just a handful of days remaining for Christmas and sentiments still strong (in fact, a renewed optimism is playing a key role in pushing Wall Street higher thanks to a less-hawkish Fed), it looks like such a solid urge is going to continue.
Wall Street's upbeat outlook on interest rate cuts is encouraging brokers to make more optimistic calls on stocks, too. Goldman Sachs now sees the S&P 500 closing out 2024 at 5,100, as quoted on Yahoo Finance. The broker house’s initial outlook was a level of 4,700 by 2024-end.
The financial markets celebrated the Federal Reserve's change in its outlook last week. The central bank hinted at a higher number of anticipated rate cuts (by about 75 bps) in 2024 than previously predicted and acknowledged the effectiveness of its anti-inflation campaign.
"Above-consensus retail sales growth further evidenced economic resilience, while lower-than-expected jobless claims affirmed that the labor market remains healthy," Goldman Sachs' equity strategy team led by David Kostin wrote in a research note over the weekend, as quoted on Yahoo Finance.
Against this backdrop, we have highlighted a few top-ranked stocks that come from top-ranked sectors. These stocks are likely to gain from Santa Rally 2023.
Utilities – Zacks Sector Rank #1
Utility companies are often debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment.
Otter Tail – OTTER TAIL's primary business is the production, transmission, distribution and sale of electric energy. The stock has a Zacks Rank #1 (Strong Buy). OTTR belongs to a top-ranked Zacks Industry (top 23%).
Construction – Zacks Sector Rank #2
U.S. single-family homebuilding jumped to more than a 1-1/2-year high in November and could gain further momentum on the back of falling mortgage rates and incentives from builders likely to draw potential buyers back into the housing market. The Fed’s potential easy money policy from 2024 has set the momentum in the construction sector.
Rollins – Rollins provides pest and termite control services to residential and commercial customers. The company offers protection against termite damage, insects and rodents to homes and businesses, including food manufacturers, food service establishments, hotels, transportation companies and retailers. The stock has a Zacks Rank #2 (Buy). ROL comes from a top-ranked Zacks Industry (top 1%).
Medical – Zacks Sector Rank #2
The sector boasts a safe-haven status amid market crisis. The tensions in the Middle East and chances of an economic slowdown next year may cause global markets to be a little volatile. Against this backdrop, medical/healthcare investing makes sense. The job growth in the sector remains decent.
DaVita – It is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end-stage renal disease. The stock has a Zacks Rank #1. DVA hails from a top-ranked Zacks Industry (top 18%).
Technology – Zacks Rank #4
The areas of blockchain, digital technology and data sharing have surged this year courtesy of the space’s inherent strength and a less-hawkish Fed. With the Fed likely to be more benevolent in 2024 and the strength of data sharing and AI space remaining intact, Internet - Software and Services stocks should continue to do well in 2024.
NetEase– NetEase is an Internet technology company engaged in the development of applications, services and other technologies for the Internet in China. The stock has a Zacks Rank #1. NTES comes from a top-ranked Zacks Industry (top 5%).