The S&P 500 index (^GSPC) is surfing at and around an all-time high as the pandemic’s light at the end of the tunnel emerges thanks to vaccines, despite serious woes in the labor market.
All the news about vaccines and stimulus plans is priced into the market, says George Ball, CEO of financial services firm Sanders Morris Harris. So what’s next?
“The market is gasping and grasping for some new leadership signal,” Ball told Yahoo Finance Live. “I think the next move, especially if you’re a trader, is probably greed, and there is a greed catalyst out there that is very influential.”
What exactly is a greed catalyst? On the one hand, Ball said that the market might see another 10% to 20% move higher over the next few months as bullishness intensifies.
But there’s another, more present catalyst Ball says is underrated. “I’m actually talking — I don’t actually do this — about the shorter-term element,” he said. “It is the Wall Street trader who gets paid his or her bonus based on the results at year-end.”
Throughout history, he said, if the market was at a high point at the end of November, it continued rising further through the end of December 75% of the time.
“Part of that you can say is the Santa Claus rally,” he said, referring to a commonly held belief that investors are irrationally bullish in December. But “on Wall Street people that get paid a percentage of the profits that they make, generally at the end of the year, will often buy more of the same stocks or bonds in the month of December.”
Those purchases are an effort to drive the market higher “to protect that bonus element,” Ball added.
In his view, there’s nothing nefarious about this, because it’s just traders buying stuff they already like.
This bias that Wall Street might have for high year-end prices may not lead to a huge 20% bump on its own, but combined with other factors, could result in a further surge in the market.