The December rally may be reaching its climax, with just two weeks to go before Santa Claus makes his midnight run. Dwindling volume, excess optimism and history all point to a stock market that could be running out of steam.
Investors appear to have grown complacent as the CBOE Volatility Index, or VIX, has fallen to levels not seen since April. Stocks have made new highs on almost a daily basis. The S&P 500 closed Friday at its highest level since September 2008 and the Nasdaq scored its best finish since late December 2007, with many expecting gains to run through the end of the year.
But Cleveland Rueckert, an analyst at Birinyi Associates in Stamford, Connecticut, believes the year-end rally may be largely done. “The majority of that gain may already have occurred,” he said.
Stocks soar for season
Some see signs of the bulls getting into the eggnog. The American Association of Individual Investors’ latest sentiment survey shows bullish sentiment reached a four-week high. What’s more, bullish sentiment has spent 14 weeks above its historical average — its longest streak in six years.