What Made Wall Street ETFs' Best Rally Since 2009 Possible?

Finally, after a month-long rout, Wall Street staged the biggest single-day jump on Dec 26 since March 2009. The S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite advanced about 4.96%, 4.98% and 5.84%, respectively. With this, stocks bounced back from the fringes of a bear market.

So far, the Fed’s policy tightening, renewed global growth worries, an oil price slump, widespread tech selloffs, heightened trade tensions between the United States and China, fears of peaking U.S. economic growth, and finally the government shutdown dealt a blow to the market.

Against this backdrop, let’s take a look at which factors brought life to Wall Street on Wednesday.

Record Holiday Shopping

This holiday shopping season has come up as the best in six years. Total U.S. retail sales, excluding automobiles, rose 5.1% year over year between Nov 1 and Dec 24, according to Mastercard (NYSE:MA) SpendingPulse, which tracks both online and in-store spending with all forms of payment.

It speaks well of upbeat consumer sentiment and a solid labor market which trumped the stock market slump in the fourth quarter and woes related to government shutdown. Overall, U.S. consumers spent more than $850 billion this holiday season, which provided confidence to investors about economic well-being (read: Holiday Sales Strongest in Six Years: ETFs Set to Surge).

Santa Claus Rally

It is believed that a Santa Claus rally normally drives markets, this time of the year. Santa Claus rally refers to the jump in stock prices in the week between Christmas and New Year's Day. There are several factors behind this surge, including "tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week" as per investopedia.

According to Stock Trader’s Almanac, there is normally “a short, sweet, respectable rally within the last five days of the year and the first two in January.” There has been an average 1.3% gain since 1950 during this phase, and it has offered positive returns about 75% of the time since 1969, per a source(read: Not Sure About 2018 Santa Rally? Buy 5 Low P/E Momentum ETFs).

Though the story this year was different at the start of December, investors probably have found the selloff overdone and placed bets on steady U.S. economic growth, healthy corporate profits and the usual equity market momentum at this time of the year. Notably, consumer shares were among the best gainers with SPDR S&P Retail (NYSE:XRT) ETF XRT and Consumer Discretionary Select Sector SPDR ETF (V:XLY) gaining about 5.75% and 5.93% on Dec 26, respectively.

An Oil Price Jump

Crude prices jumped from a 17-month low on Dec 26 with United States Oil (NYSE:USO) USO and United States Brent Oil (AX:BNO) gaining about 6.6% each. Positive comments on global supplies by Russian Energy Minister Alexander Novak boosted prices. Per the minister, oil prices would become more stable in the first half of 2019 thanks to the fresh output cut deal by the OPEC and some non-OPEC countries. Energy companies’ ETF Energy Select Sector SPDR ETF (NYSE:XLE) XLE was up 6.2% on Dec 26 (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).

Cheaper Valuation

After such steep selloffs in most of the fourth quarter, stocks are now trading at a much cheaper valuation. SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY) (down 18.91% till Dec 25), SPDR Dow Jones Industrial Average (NYSE:DIA) ETF (V:DIA) (down 17.04% till Dec 25) and Invesco QQQ Trust QQQ (down 22.5% till Dec 25) – all lost in double digits and investors dug in that cheaper valuation.

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