Stock of the week: naughty or nice, the Santa Claus rally could discriminate this year

The end of the year has traditionally been when stocks perform well and head into the new year on the front foot. According to data on the Stock Traders Almanac, the last five trading days of the year, along with the first two trading sessions in January tend to be positive for US stock markets. However, market anxiety is high as we lead up to Christmas, stocks slid at the end of last week, as major central banks including the Federal Reserve and Bank of England shifted to a more hawkish policy stance, with the BOE actually raising interest rates. Thus, traders need to position themselves for a future of tighter monetary policy. As we lead up to another holiday-shortened week, US markets are closed on Friday due to Christmas, there is a possibility of a Santa rally, however, watch out for low volume, as this could lead to swings to the downside.

It’s the most magical time of the year, for some stocks

Christmas miracles do happen, so even in a market that is fretting about the timing of the first-rate hike from the Federal Reserve and is worried about the rapid global spread of the Omicron Covid variant, there is the chance of a rally for stocks next week. Likewise, some savvy investors may be salivating at the prospect of picking up a bargain on the back of last week’s declines in stocks. As we have said in recent notes, we prefer to stay away from the super-growth stocks that shined in 2020 and early 2021, and instead we prefer to focus on stocks with stable earnings who are better prepared to ride out the latest Fed/ inflation/ Covid storm. Below, we have three stocks that we think could do well if the Santa really does come to Wall Street before year end!

1. Amazon: This stock has had a tough month after falling back from its high above $3,690 on 19th November, and Amazon’s stock price has been volatile since then. It is now approaching its 3rd December low at $3,355; it is currently trading around $3,400. If it can hold support at this level, then we may see a bounce back for Amazon. The fundamental picture is more complex for Amazon, after it projected that 4th quarter sales could lag behind the overall e-commerce market, as sales slow post the pandemic and because supply chain shortages have hit the company hard. This is why we don’t like to trade Amazon for the long-term, however, this technical picture has piqued our interest. If we do see a further decline back to the $3,355 level and if this support level holds, then we may see investors try to ride this recovery wave for Amazon higher, back to key short term resistance at $3,500-$3,525- the high from 7th December.


2. Pfizer: The US pharma giant fell nearly 3% on Friday, which could be a good entry level for a short-term trade that is looking for this stock to recover. The news over the weekend has been mostly focused on Omicron, the latest Covid variant, and its rapid spread around the world. The UK has recorded record infection rates, lockdowns and travel bans are popping up all across Europe and infection rates are rapidly rising in the US. Governments across the world are desperately trying to come up with a plan to try and ward off this latest Covid variant, and Pfizer is at the centre of the pharma industry’s fight against Covid. It is dominating in Covid vaccines and treatments, for example, along with Moderna’s vaccine, its vaccine is being used for booster shots in the UK and across Europe. Also, its anti-viral treatment is being touted as a major defence against the Omicron wave. Its latest earnings report suggested that Pfizer could earn $40bn in Covid franchise sales in 2022, however, due to the speed with which Omicron is spreading, we think that these estimates are likely to be revised higher in the coming weeks. The media is likely to continue to focus heavily on Omicron this week, which may boost demand for Pfizer’s shares as we lead up to the Christmas holiday. It is also worth noting that even though this stock is close to a record high, technical indicators suggest that momentum is still on the upside.


3. Boeing This is one for the risk-takers out there. Boeing has fallen sharply this month on the back of Omicron playing havoc with international travel once again. Its stock price is dwindling close to its lows of the year and it closed on Friday 17/12 around the $192 level. However, its stock price managed to recover on Friday even though the broader US stock market fell. This suggests to us that there is demand for Boeing and it could benefit from bargain hunters looking for solid companies that are trading at a fair price. As we have mentioned, omicron is the dominant theme for markets as we lead up to Christmas. However, if we get data from the UK and Europe in the next few weeks that does confirm some of the data that has come in from South Africa, that this variant is less virulent, then we think that airlines, travel firms and Boeing could rally hard. Thus, this trade idea is one to use when and if the Omicron news is more positive and less fearful than currently thought.