Santa baby, I want a yacht and really that’s not a lot
Been an angel all year
Santa baby, so hurry down the chimney tonight…

Those song lyrics popped into my head this morning, as I sat down to write about the state of the economy and the markets.

The worsening pandemic? Reimposed lockdowns? Wall Street is shrugging it all off. Below, I’ll examine the favorable factors that could propel stocks into a “Santa rally” this year.

Driving stocks higher in recent days is the combination of strong retail sales, vaccine optimism, and the end of electoral uncertainty.

Stocks on Thursday rose in tandem with safe haven assets such as gold and U.S. Treasury bonds. The Dow Jones Industrial Average rose 85.73 points (+0.29%), the S&P 500 fell 2.29 points (-0.06%), and the tech-heavy NASDAQ climbed 27.82 points (+0.23%). Global equity benchmarks rose as well.

In pre-market futures trading Friday, all three main U.S. stock market indices were poised to open higher. Despite rising coronavirus caseloads, investors are hopeful that vaccines will stem the tide. The latest jobs reports this week have been a mixed bag, but investors don’t seem worried.

The U.S. Department of Labor (DOL) reported Thursday that initial jobless claims for the week ended November 28 came in at 712,000 versus 775,000 expected. However, the DOL reported Friday that nonfarm payrolls increased by only 245,000 last month, far below the consensus estimate of 440,000.

A Christmas miracle…

Signs emerged Friday that maybe, just maybe, Congress would pull off a Christmas miracle and reach agreement before the end of the year on fiscal stimulus worth $908 billion. The on-again, off-again stimulus talks are on again.

The stakes are high. Under existing law, about 12 million Americans could lose their jobless benefits by year’s end. If a relief bill passes this month, stocks probably would soar. It also would be an auspicious sign that the two parties can actually work together in the post-Trump era that starts on January 20.

To be sure, the pandemic remains a serious health threat. There appears to be a disconnect between the virus-beleaguered economy and the rising stock market. However, markets are forward looking and investors are starting to see light at the end of the tunnel.

Bolstering the bull case are robust holiday sales so far. This year’s Thanksgiving weekend smashed online shopping records. According to Adobe Digital Insights, total e-commerce sales over the entire Thanksgiving weekend reached $34.4 billion, with Cyber Monday alone comprising $10.8 billion of the total. This year’s Cyber Monday was the biggest online shopping day in U.S. history (see chart).

As the data point to stronger growth in 2021, we’re in the midst of sector rotation. The compelling investments now are value plays in economically sensitive sectors that have been laggards.

Watch This Video: Does The Rally Have Legs?

There’s an additional benefit to buying stocks of inherently solid companies when they’re undervalued. Not only do you get exposure to the improving fundamentals that push prices higher over time, but in the short to medium term, you’ll probably enjoy an extra bump from mean reversion.

As 2020 winds to a close, you should pocket at least partial gains from your biggest winners, especially mega-cap technology stocks that have enjoyed a big run; elevate cash levels (about 45% is a prudent allocation right now); and increase your exposure to beaten-down cyclical stocks that have suffered during the pandemic (e.g., select energy companies, especially those in the midstream sector).

Make no mistake, we’re not out of the woods. The U.S. Centers for Disease Control and Prevention on Wednesday warned that December, January and February were likely to be “the most difficult time in the public health history of this nation.”

As of this writing Friday, the U.S. death toll since the start of the pandemic hovers at about 277,000. But there’s considerable reason for optimism about the economy, as fiscal stimulus negotiations, resilient consumer confidence, and imminent vaccine distribution offset virus fears.

Meanwhile, as a backstop, the Federal Reserve continues to pledge ultra-dovish monetary policy over the long haul. So yes, Virginia, dare to believe in a Santa rally.

The demand for “green” medicine…

The pandemic-era focus on public health underscores how biotechnology should do well next year. A promising biotech theme is medical marijuana.

Marijuana equities are getting a boost this week, as the U.S. House of Representatives considers historic legislation that would lift the federal ban on cannabis.

Read This Story: American Weed: Fed Ban on Pot Nears Repeal

Our investment team has found a stock that’s a play on both biotech and marijuana. It’s a small-cap drugmaker that has developed a non-addictive “marijuana pain pill.” The pill is a cannabis-based, non-opiate pain remedy that could be the blockbuster pharmaceutical of the future.

Now’s the time to invest in this medical marijuana company, while it’s still flying under the radar. Click here for details.

John Persinos is the editorial director of Investing Daily. He also writes the twice-weekly e-letter, Marijuana Investing Daily. You can reach him at: mailbag@investingdaily.com. To subscribe to his video channel, follow this link.