Traders and strategists say the market rally is likely to continue through December for a deceptively simple reason: Stocks have rallied significantly all year, and those gains are likely to beget further gains.
The market “should do pretty well into the end of the year,” writes Nicholas Colas, chief market strategist at ConvergEx Group. “There’s plenty of cash that probably feels it should get off the bench, and so many managers have underperformed in 2013 that many of them will probably want to look fully invested by December 31.”
In other words, since most fund managers have returned less than the market, there will be a temptation to buy into the end of the year to try to capture some last-minute gains—or at least make it look like they have owned the winners all year.
“Year-end melt-up, here we come,” Colas continued in a recent note.
After all, owning anything other than stocks has not been a winning maneuver in 2013.
“Commodities and bonds have given investors little or no return this year, while the S&P is up 20 percent,” points out Anthony Grisanti of GRZ Energy and a CNBC contributor. “If you would have invested in gold over the same period, you would be down over 20 percent.”
Besides, most of this year’s news has already come out. “Earnings season is rapidly winding down, and the market has digested the mixed results,” Grisanti said. “There are no major headwinds to speak of for the next week or two.”
This isn’t just conjecture—after they have rallied all year, stocks really do tend to close on a high note.
Over the past 25 years, the S&P has risen an average of 2.4 percent over November and December, which is nothing to sneeze at. But in the 12 years since 1929 when the market has already rallied over 20 percent over the first 10 months of the year, the market has risen an impressive 4.8 percent on average.
Of course, stocks are also likely to get a lift from the Federal Reserve into the end of the year. The Fed’s bond-buying program has helped stocks by making other investments less attractive, and few expect the Fed to change policies before the end of the year.
For that reason, even noted bear and short-selling Bill Fleckenstein says that stocks are un-shortable.
“As someone who is contemplating re-entering the short side of the business again next year, if I was all cashed up with money to run on the short side, I wouldn’t be short a share right now,” Fleckenstein said Thursday on CNBC’s “Futures Now.” “I don’t think it’s going to be possible to make serious money on the short side until the Fed has been disciplined by the bond market.”
(Read more: Bulls are ‘being fooled’ once again: Fleckenstein)
And with little likely to change between now and the end of the year, most are describing stocks as a pretty safe bet for now.
“With little data, traders will be looking to go with the momentum,” said Rich Ilczyszyn of iiTrader and a CNBC contributor.