Trade Deal Optimism Fuels Santa Rally: ETFs & Stocks To Bet On

Wall Street bulls are currently enjoying a festive rally, driven by positive developments on the trade front and easy money policies. In fact, the major indices are hitting a series of fresh highs in the final month of 2019. This is evident from the S&P 500 and the Dow Jones’ growth of 1.5% and 0.5%, respectively, so far this month.

Santa has Arrived!

In the preliminary trade deal, China committed to buy $40 billion of American agricultural products annually, tighten measures for protecting American intellectual property and stop forcing American companies to transfer their technology while doing business in China. In return, President Trump agreed to halt the planned tariffs on $156 billion of Chinese goods that were due to take effect from Dec 15. The Trump administration also cut tariffs, which were imposed in September, from 15% to 7.5% on Chinese goods worth $120 billion.

However, the 25% tariff on Chinese imports worth $250 billion, levied in March 2018, will be intact. The deal is expected to be signed in early January and has allayed fears of global slowdown and instilled confidence in the market. U.S. Trade Representative Robert Lighthizer stated that the deal will boost U.S. exports to China by $100 billion in 2021, nearly double the current levels.

Additionally, a separate report showed that China will lower import tariffs on over 850 products, including frozen pork, pharmaceuticals and some high-tech components from Jan 1, and some information technology products from Jul 1. The optimism stemming from the trade deal has been a key catalyst and will continue to drive the stocks. This coupled with the Santa Claus rally have turned the market super bullish for the last five trading days left this year.

A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year. According to the Stock Trader’s Almanac, the Santa Claus rally has yielded average cumulative returns of 1.4% in 34 of the past 45 holiday seasons over the seven-day period since 1969.

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