Today is Friday, December 22, the last trading day before Christmas. Below, I examine the “Santa Claus rally” to date and what the technical indicators portend in the final days of 2023.

The period between Thanksgiving week and New Year’s Eve historically marks a bullish year-end sprint for U.S. stocks, known on Wall Street as the Santa rally.

This year, Santa came early. The S&P 500 has racked up a 15% gain since its recent lows on October 27, and it’s up about 25% year to date.

After a 2.2% decline in October, the S&P 500 index rebounded by 8.9% in November, representing the fourth-largest monthly gain of the past decade and the best return for the month of November since 1980.

There are many theories as to why the calendar effect of a Santa rally is so reliable. Some analysts attribute the phenomenon to low trading volume, as asset managers take the week after Christmas as a holiday vacation. Others suggest the outsized buying comes from managers attempting to position themselves with increased bullish exposure as the market starts a new fiscal year.

Whatever the reason, as we head into 2024, the main U.S. stock market indices already have posted healthy gains year-to-date and you should consider how to position your portfolio for the year ahead.

Next year, we’ll probably experience falling interest rates and accelerating economic growth. That means rate-sensitive sectors that got punished in 2023, such as utilities and real estate, should outperform. Also poised to outperform in 2024 are small- and mid-cap stocks, as well as cyclical and value plays.

The momentum this holiday season seems to have legs that will extend into the new year, as jobs growth and corporate earnings stay on track, consumers continue to spend (albeit judiciously and with an eye toward bargains), and the inflation beast loses its bite.

The Wall Street elves…

The U.S. Commerce Department reported Friday that the personal consumption expenditures (PCE) price index rose only slightly in November.

Excluding volatile food and energy components, the so-called “core” PCE reading showed that prices rose by only 3.2% on a year-over-year basis and 0.1% for the month.

Next week, I’ll conduct a deeper dive into the latest economic and inflation data, all of which have fueled the holiday rally.

But for now, let’s examine key technical indicators. The late Wall Street legend Louis Rukeyser referred to technical analysts as “elves.” What are Santa’s elves telling us, ahead of Christmas? The following charts are up to date, as of market close December 22.

The benchmark SPDR S&P 500 ETF Trust (SPY) in recent weeks has climbed well above its 50- and 200-day moving averages, largely due to falling bond yields and encouraging inflation data:

A moving average helps smooth out price data by creating a constantly updated average price.

A rising moving average indicates that the security or index is in an uptrend, while a declining moving average indicates a downtrend. The shorter the moving average, the sooner you’ll see an actual change in the market.

The benchmark 10-year U.S. Treasury yield (TNX) hovers well below its 50- and 200-day moving averages, which is a highly favorable trend:

Bond yields and stocks tend to move in opposite directions. Keep your eye on the 10-year yield. If it continues its descent, it will signal that Wall Street expects monetary loosening, which is fuel for equity rallies.

In another positive omen, the New York Stock Exchange Advance/Decline Line (NYAD) has been rising:

The NYAD shows how many stocks are advancing versus declining in any given period on the New York Stock Exchange. A rising NYAD is bullish, because it denotes improving market breadth. The converse is true when it’s falling.

The CBOE Volatility Index (VIX), aka the “fear index,” has been falling and currently hovers well below the pivotal threshold of 20:

Readings of the VIX below 20 indicate falling stress and anxiety in the markets. The VIX is down to about 13, its lowest level since late 2019 when the COVID outbreak started to become apparent.

The main U.S. stock market indices closed mostly higher on Friday, as follows:

• DJIA: -0.05%
• S&P 500: +0.17%
• NASDAQ: +0.19%
• Russell 2000: +0.84%

The major equity averages notched their eighth-straight winning week. The S&P 500 is now only 0.8% from its record close.

WATCH THIS VIDEO: Navigating The Transition from 2023 to 2024

Investors already have gotten a sleigh full of gains this holiday season, with more likely to come.

Defensive assets that underperformed in 2023 are setting the stage for a rebound in 2024. Specifically, as you recalibrate your portfolio allocations for next year, turn to utilities stocks.

The utilities sector has gotten clobbered lately by rising interest rates, but it’s poised to rebound as bond yields continue falling. That means value plays are ready for the picking.

However, you need to pick the right ones. For our list of the highest-quality utilities stocks, click here now.

Happy Holidays!

In the meantime, whether you celebrate Christmas or Kwanzaa next week, or whether you’ve just finished celebrating the eight days of Hanukkah, I wish all of you a happy holiday.

Thanks for your loyal readership. And here’s to making the New Year a prosperous one.

If you have any examples about how the advice from Investing Daily made you money in 2023, tell me your story via this email address: mailbag@investingdaily.com. I’d like to hear from you…even if it’s just a Festivus grievance you want to get off your chest.

John Persinos is the editorial director of Investing Daily.