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Is a December Rally Likely?—Searching for Alpha for December 2011

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It’s hard to believe that stocks were down over 7% at one point last month. But the coordinated central bank intervention on Nov. 30—and on the last day of the month, no less—enabled equities to end the month with only modest losses. 

Such attempts to prop up the market can’t go on forever, of course, but they underscore the will of the Western world to avoid a recession at any cost. But it won’t have to, as a December rally is all but assured amidst bullish seasonal factors and the mindset that Europe won’t implode until after the New Year at the earliest. 

I mentioned a few reasons to favor stocks heading into year-end in last month’s Searching for Alpha newsletter. These included robust earnings and hedge funds desperate to make some cash, to name a few.

But the most important reason to believe in a Santa Claus rally is simply because we need one—and the central banks of the world can simply will a rally into existence if traders need a nudge.