File picture of traders on the floor of the New York Stock Exchange (NYSE). The 'Santa' spirit has clearly overtaken the markets. Image Credit: AFP

Dubai: In contrast to the turmoil of a year ago, investors worldwide celebrated Christmas booking the gains they made - but analysts warn of a selloff at the start of 2020.

The top indices on Wall Street rallied in the run up to Christmas, while Nasdaq has been rising for 10 straight days for its best trading phase since mid-2017. The S&P 500 index has returned 28.6 per cent so far this year, thus hovering near 2013 highs.

“Equity markets had a stellar 2019, more than recovering the ground lost in 2018,” said Jonas Goltermann, Senior Markets Economist at Capital Economics.

The pound steadied against the dollar at $1.295 after a tumble of about 3 per cent over the past week. Gold climbed against the dollar, tracking its best year since 2010, with gains so far this year coming to 16 per cent.

Bitcoin roughly doubled in price over the year, to about $7,380. European stocks are currently at fresh highs, with the pan-European STOXX 600 index adding 0.14 per cent on Tuesday before closing for Christmas. A gauge of global equity markets also traded at record highs.

‘Santa Claus’ rally

Historically, stocks have performed well in the period that includes the year’s last five trading days and the first two sessions of the new year, in what has come to be known as the “Santa Claus rally”. The first few days of the new year are considered “an early warning system” that gives an idea how the year will turn out, according to Stock Trader’s Almanac.

Analysts say, however, there will be some profit-taking in January, and the market may pull back after its handsome gains in 2019. Investors could hold off selling stocks that had seen big gains due to tax considerations and instead take those profits in the first part of 2020.

“It’s normal to see profit-taking, and we’re seeing a little bit of that,” said Quincy Krosby, chief market strategist at Prudential Financial. “And that’s to be expected in a market that’s moved fast, quickly and only in one direction.”

“We’ve historically seen a bit of profit-taking on the first trading day of January when people don’t want to incur capital gains in December,” said Jeffrey Hirsch, editor of the Stock Trader’s Almanac and Chief Market Strategist at Probabilities Fund Management.

Scott Redler, Chief Strategic Officer at online trading platform T3 Live, said that stocks that were sold this year might do better in early 2020. “It might be better to get into some of the weaker sectors, like some of the beaten-down IPOs like Uber, Beyond Meat and Slack or some of the energy names,” Redler added.

Investor sentiment has also been spurred by hopes of a US-China “Phase One” trade deal. President Donald Trump said he and Chinese President Xi Jinping will sign the initial phase of the pending trade pact in a ceremony, the latest remarks by the US leader to flag that a deal is close to being finalized.

“In our view, the Phase One deal is unlikely to resolve the underlying tensions between the two countries, which could easily flare up again,” Goltermann said.

Gulf goes all quiet

Gulf stock markets were mostly quiet in moderate trading volumes on Wednesday in the absence of foreign investors for Christmas. The main indices in Dubai and Abu Dhabi were largely unchanged this week as fewer shares changed hands.

On the DFM, “selective” buying has helped the index cross the 2,750-point level, gradually turning up towards the higher target at 2,840 in the short term, Shiv Prakash, senior analyst at First Abu Dhabi Bank Securities (FABS) said in a note.

The 5,020-point level on the ADX “stood strong” and may attract buying to target the 5,180-point level in the short term, Prakash added.