50-Year Santa Rally Probability 87%... Many Variables This Year, Check Earnings First

Domestic Market Smiles Amid Santa Rally Hopes Spreading in US Stock Market
Many Variables Including US Long-Term Bond Yields, War, and Domestic Transfer Avoidance Volume
Focus on Food & Beverage, Utilities, Cosmetics, Healthcare, Tires, and Semiconductors Sectors

Expectations for a 'Santa Rally,' where stock prices tend to rise around Christmas, are growing stronger. With inflation slowing down and assessments suggesting that the U.S. tightening cycle has reached its end, the positive momentum in global stock markets is expected to act as a driving force for the domestic market. Generally, stock prices tend to rise toward the end of the year due to dividend expectations, and this year, the added benefit of the end of interest rate hikes suggests the possibility of a rally continuing through year-end.

On the 21st, domestic securities firms' research centers predicted that stock prices would show an upward trend until the end of the year, leading to a Santa Rally. Hi Investment & Securities analyzed historical cases and found that when the Standard & Poor's (S&P) 500 index rose more than 5% from the beginning of the year until November 15, stock prices tended to rise from November 15 until year-end. Researcher Park Sang-hyun of Hi Investment & Securities explained, "Out of 30 cases in the past 50 years where the S&P 500 index rose more than 5% by November 15, a Santa Rally appeared in all but four cases. Since the S&P 500 index rose 17.3% by November 15 this year, there is potential for further gains until year-end."

The previous day, the KOSPI closed at 2,491.20, up 21.35 points (0.86%) from the previous trading day, approaching the 2,500 mark. The KOSDAQ index also rose 14.02 points (1.75%) to 813.08. Kim Seok-hwan, a researcher at Mirae Asset Securities, evaluated, "With the slowdown in U.S. economic indicators leading to expectations of the end of interest rate hikes, government bond yields have fallen, and the dollar has weakened, resulting in a recovery of risk appetite across Asian stock markets."

Factors fueling expectations for the Santa Rally include the resolution of uncertainties that had suppressed the stock market. Concerns are gradually disappearing due to reduced U.S. Treasury issuance plans, oil prices falling below $80, improvements in Chinese economic indicators, and the holding of the U.S.-China summit. Researcher Park Sang-hyun said, "Since the U.S. consumer price index release last month, the probability of a rate freeze at the Federal Open Market Committee (FOMC) meetings in December and January next year has reached 100%, and there is an atmosphere anticipating rate cuts in the first half of next year. While we need to observe upcoming economic data, there is room for U.S. Treasury yields to fall further amid expectations that the war against inflation may be ending." Lee Kyung-min, a researcher at Daishin Securities, added, "Global stock markets are normalizing as uncertainties rapidly ease, moving away from three months of volatility. Based on the downward stabilization of bond yields and the dollar until year-end, the KOSPI is expected to continue its upward trend toward the 2,600 level within the year."

The shift to net buying by foreigners and institutions in the domestic stock market has also increased expectations for the Santa Rally. Lee Hyuk-jin, senior researcher at Samsung Securities, evaluated, "Foreigners and institutions have net bought more than 2 trillion won in the KOSPI this month, but customer deposits have stagnated around 48 trillion won, indicating a change in the supply-demand environment, which is positive."

On the afternoon of the 20th, KOSPI closed at 2,491.20, up 21.35 points (0.86%) from the previous session, as dealers were working in the Hana Bank dealing room in Jung-gu, Seoul.
[Photo by Yonhap News]

However, there are also variables. The Wall Street Journal (WSJ) forecasted that the 10-year U.S. Treasury yield, which remains high at around 4.4%, could limit further index gains. The greater the expectations for rate cuts, the more volatility could increase if hawkish remarks contrary to expectations emerge at the FOMC. Kim Young-hwan, a researcher at NH Investment & Securities, said, "There are factors such as the easing of U.S. political uncertainties, falling inflation leading to lower rates, and the year-end shopping season starting on the 24th. However, the current decline in long-term U.S. Treasury yields driving stock market gains cannot continue indefinitely. Since such a rapid pace of rate decline is unlikely to persist, the speed of stock market gains may gradually slow."

The Bank of Japan's end to its 'ultra-loose monetary policy' could also be a variable. There is analysis suggesting that the Bank of Japan will abolish its Yield Curve Control (YCC) policy by year-end and that the current short-term interest rate of -0.1% could rise to 0% by early next year. Other variables include the war between Israel and the Palestinian militant group Hamas and domestic major shareholder tax-avoidance sell-offs. Every year, large volumes of individual sell orders aimed at avoiding major shareholder capital gains tax flood the market before the tax deadline (December 27). Last year, individual net selling reached 8.507 trillion won in the last week of December alone.

Experts advise caution in investing. Even if a Santa Rally unfolds, it is essential to focus on fundamentals and approach selectively. Especially when the short-selling short-covering effect disappears and the market stabilizes, it is crucial to confirm visible fundamental improvements such as earnings or macroeconomic indicators. Lee Jae-man, a researcher at Hana Securities, said, "In the domestic stock market, long-short returns based on changes in operating profit estimates have performed well. It is necessary to simplify strategies by following earnings." He added, "Sectors with upward revisions in operating profit growth forecasts over the past month include food and beverages, utilities, cosmetics, healthcare, tires, and semiconductors." Researcher Lee Hyuk-jin recommended paying attention to stocks that could benefit from export rebounds and declines in international oil prices.

This content was produced with the assistance of AI translation services.