Investors won't see big returns on stocks 2023 if a Santa rally doesn't happen before the new year. (2024)

Hi friends. I'm senior reporter Phil Rosen, writing to you from Los Angeles.

If you didn't see, Elon Musk last night said he would step down as CEO of Twitter once he finds someone "foolish" enough to take the job.

So... any takers?

Anyway — Christmas is four days away but Santa's nowhere in sight.The S&P 500 is down about 19% on the year, and those losses could spill over into the new year if stocks don't see the usual holiday rally.

This means that any equity returns next year will be dependent on what the Fed does next.

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1. The window for a Santa Claus rally on Wall Street doesn't open until the final five trading days of the year, which begins this Friday.

But if the S&P 500 misses that final rally, that bodes poorly for rebound odds in 2023.

"When the index is down in the double digits as it is today, the odds of it being positive next year is essentially a coin flip and the returns aren't nearly as promising as they would be if the S&P ended down less than 10%," DataTrek co-founder Jessica Rabe wrote in a Tuesday note.

She pointed out that if the major index sheds more than 10% for a year, the average return in the following 12 months falls from 17.5% to 6.4%.

The lack of a holiday rally so far suggests that more rocky markets await when the calendars change.

Investors already have plenty of reason to fear what could come next. Concerns about an imminent recession, declining corporate earnings, and more Fed rate hikes are mounting — add in a downbeat stock outlook and the holiday cheer gets even more muted.

The Fed's aggressive monetary policy has driven this year's equity sell-off, but Rabe said any returns in 2023 will come down to the central bank.

"As for what turns US equities around after a hard year, the essential ingredients are: help from the Federal Reserve in the form of lower interest rates or Federal government spending," Rabe said, pointing to the 2008 financial crisis as an example.

Fiscal and monetary policy stimulus could lift stocks after a forgettable year, she added. Recall that while the S&P 500 tumbled 37% in 2008, it rebounded 26% in 2009.

"That's why US equities are so volatile now," Rabe said. "As no one knows when the Fed will pivot to being more accommodative."

What's your stock market outlook for 2023? Tweet me (@philrosenn) or email me (prosen@businessinsider.com) to let me know.

In other news:

2. US stock futures are rising early Wednesday, setting the S&P 500 up for a second day of gains as those traders still on duty adjust to the BoJ's shock move.Here are the latest market moves.

3. Earnings on deck: Micron Technology, Herman Miller, and more,all reporting.

4. This hedge fund manager is up over 39% this year. He shared six undervalued stocks that he's bullish on ahead of the new year — see the names here.

5. Russian oil exports have cratered by 54% in the first full week of the EU embargo. At the same time, there's been a shortage of tankers willing to carry those supplies, and energy giants like Exxon Mobil and Shell are avoiding hiring tankers that previously carried Russian oil.

6. The chief US economist of Pantheon said homebuilding still has room to fall and odds for recovery are "next to nil" until demand returns. The housing market is far from a recovery, Kieran Clancy added. The latest data showed single-family home starts declined 4.1% last month.

7. FTX is trying to recover voluntary payments made to third parties. And those include political contributions and charitable donations. Disgraced founder Sam Bankman-Fried made tens of millions of dollars in political contributions before his exchange filed for bankruptcy.

8. Bank of America recommended a batch of stocks that have been oversold this year and have suffered steep losses. Strategists selected top-rated names to watch in an uncertain market. Here are the 21 stock picks poised for outsized moves in 2023.

9. Even with inflation, certain market moves can still deliver profits over the next year, according to Morningstar. The firm shared two trades that can bring 7% returns — and why the 60/40 portfolio strategy is starting to look attractive again.

10. ARK Invest's flagship fund has plunged to new five-year lows. Tesla stock's historic decline has dragged the ETF more than 80% from its February 2021 high. That represents a loss of roughly $20 billion in assets under management.

Curated by Phil Rosen in Los Angeles. Feedback or tips? Tweet @philrosenn or email prosen@businessinsider.com

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.