The stock market again jumped on Monday, carrying its upward momentum toward unprecedented levels. The Dow Jones Industrial Average (DJINDICES:^DJI) joined the S&P 500 (SNPINDEX:^GSPC) at record high levels, while the Nasdaq Composite (NASDAQINDEX:^IXIC) had to content itself with a somewhat smaller percentage gain.
News of another potentially successful coronavirus vaccine bolstered sentiment on Wall Street. Yet professional traders are starting to look at the potential for an end-of-year rally as 2021 approaches. Although long-term investors don’t really need to consider whether seasonal factors exist, it’s something you’ll want to keep an eye on as it develops so that you can put short-term moves into the proper context.
Why Wall Street’s in a better mood
Putting together a narrative for an end-of-year rally is pretty simple. September and October are typically volatile months for the market, and that’s particularly been the case this year. Once the holiday season approaches, investors get into a better mood, and attention starts to turn toward the successes of the old year and the promise of the new one.
2020 has been different in many ways, but the fact that it was a presidential election year only added to the comfort factor once the polls closed. Even before the result was clear, investors celebrated having the long campaign slog behind them.
Now, market participants are focusing on the positives. It’s not that there aren’t worries to consider, especially given record COVID-19 cases in the U.S. and a likely wait before any vaccine becomes available. But investors seem confident that the federal government will start to offer economic assistance, whether it comes now or in late January. That could spur greater economic activity that in turn could create a positive feedback loop to support more growth.
What investors need to prepare for
With the stock market so positive, investors can expect privately held companies to come out of the woodwork and offer their shares to the public. That appears to be the case now for travel service Airbnb, which has released its prospectus for its IPO after having filed initial paperwork confidentially with the U.S. Securities and Exchange Commission.
Many had expected Airbnb to come public long before now, but COVID-19 crushed its business temporarily. Travel restrictions prevented guests from getting to host properties, and the unprecedented nature of the pandemic caused tension regarding cancellation policies. However, as the year progressed, Airbnb saw demand climb substantially as travelers preferred its single-family accommodation offerings over traditional hotel rooms.
Airbnb won’t be the only IPO. The digital revolution has highlighted dozens of promising small tech companies, many of which are still privately held and could use capital. And with markets at new highs, valuations are less of a concern for investors, raising the chances that share prices will get bid up to the benefit of young upstart businesses.
Expect the unexpected
You shouldn’t count on any year-end rally as being a straight-up move. There are still plenty of potential catalysts for hiccups in the stock market. But after so much uncertainty, an apparent resolution to many outstanding issues could make investors more bullish than they’ve been in a long time.
