With the recent pullback in the stock market over the past couple of weeks, there are questions hanging over the market as to whether the seasonally strong period in the stock market will be broken this year. In previous years, the market has been inclined to trend upwards during the November and December period. There are several psychological as well as mathematical reasons for this seasonal factor.
Investors begin to focus on the upcoming holiday and shopping season. As often is the case leading into Christmas, consumers shop more for friends, families and themselves. There is a natural uplift in sentiment as well as spending due to the closing of the year. This psychological effect generally feeds into the stock market.
The early numbers appear to demonstrate that consumers both locally and abroad are still spending for the Christmas and holiday season. While it is a good start that may lift sentiment in the short-term, investors remain cautious with the ongoing problems in Europe. Money is still staying on the sidelines afraid to be invested into the market, even when valuations are reasonable and company fundamentals have improved.
While we can be hopeful for a few good weeks in the stock market leading up to Christmas, could the European sovereign debt crisis make this year one of the very few years where Santa Claus decides to stay home? Only time will tell.
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