3 factors that could drive stocks higher this December: Strategist

For more on what we're seeing in the market as we get set to wrap up the week, as well as the trading month, we're going to get to Quincy Crosby, chief global strategist at LPL Financial. Quincy, it's great to have you on here. So looking like a positive day when it comes to equities here. Santa coming in a little bit early for the market this November. What is going to carry that rally into the end of this year? Well, first of all, you're going to go into probably the best month in terms of seasonality is December. November and December together tend to be good months for the market. Not always, but statistically, it looks as if we will end the year in positive territory, absent an exogenous shock or some headline that skews the market down. But probably we will be in positive territory. But what we're going to be seeing is jockeying for performance, for portfolio managers, making certain they end the end of the year in positive territory. And many of them may actually close their books earlier if the market comes in December and really hard and higher. Many of them just lock up and they don't want to jeopardize a very strong positive market. But overall, the market is still enthusiastic about the incoming administration. Granted, tariffs are a concern, but you can see where the market is beginning to suspect that maybe the higher tariffs, the headlines are a tactical move by the administration because we're already seeing the leaks come out. We're seeing more than just leaks. We're seeing information coming out and we're seeing the responses from our trading partners. Already, Mexico has been involved. And in addition, we're going to be hearing from Canada and needless to say, China. China has actually put forth some olive branches. Some Americans who've been in custody in jail for many years have been let go. So it looks as if they are trying to ameliorate the headlines. Quincy, you were talking about seasonality there as well. And I'm curious about sort of on an annual basis what we tend to see, because we're looking at the best year now since 2013 for the S&P 500. As you said, everybody's trying to lock in those returns on the year. Like if your money manager didn't at least match some of these returns or at least have a positive year, you've got to be asking some questions. But I'm curious about what you tend to see after a return like this going into the next year, whether you see some moderation. Well, we probably do. I mean, for one thing, we can't forget about earnings. I mean, really, it is what underpins the market when all is said and done. And we're seeing earnings revisions coming down for 2025. That doesn't mean that we're not going to see upward revisions. But as we speak about it now, we're looking at more downward revisions rather than revisions climbing higher. So that's going to be very important, what the earnings are. And then again, it's the Fed. This market has been disappointed so many times regarding the possibility of a series of rate cuts. And if the Fed begins to suggest that we are not going to have as many rate cuts as the market wants, the market, I think, is going to be pretty disappointed. We have to remember also that it was November 1, 2023, that the market actually had been selling off and had been dormant. It was negative. But November 1st changed it. And what changed it was the Treasury Department making an announcement that morning that the refunding was a little bit less than the market had expected and that they would skew to short duration notes rather than longer duration. And in the afternoon on November 1, it was the Fed. And the Fed didn't come out and say they're going to cut rates. But there was a suggestion that they got it. They understood what the market wanted. And some suggested that actually there would be some rate cuts without any clarity. That changed the market. But this going into next year, we're going to have more funding, more funding needs, $7.5 to $8 trillion. And you're also going to have coming out on longer duration. We have to see how those auctions hold up. It's going to be crucial. So that, coupled with tariffs and the market trying to figure out how much will be enacted, what the retaliatory response will be, the market has some uncertainty to have to deal with and get through it. But that's the market's job. And we still have geopolitical risk. The market has been absolutely incredible navigating geopolitical risk. You would think there was no problem in the Middle East. You'd think that there was nothing going on in Europe. But the market has basically said, as long as it's contained, we can keep marching higher. Yeah. Quincy, it's interesting that you talk about tariffs. I want to pull up a quote from the recent Fed meeting minutes here. In the minutes, they say, participants cited various factors likely to put continuing downward pressure on inflation, including waning business pricing power. The committee's still restrictive monetary policy stance and well-anchored longer-term inflation expectations. I want to get your take on that line about waning business pricing power. Do you see evidence of that already? And how could a Trump 2.0 potentially impact that dynamic? And what would that mean for earnings growth? I mean, that just strikes me as a concern from the market's perspective moving forward. Well, yeah. I mean, there is a concern. I mean, one of the things that really helped the market was pricing power. I mean, companies came in and they were able to keep raising rates and consumers paid the price, small business owners paid the price. But consumers are much more discerning. They're spending, there's no doubt about it, but they are looking for more and more bargains. Also, something I think is interesting, and I hear it outside of the market commentary, and that is trying to beat the tariffs. In other words, trying to figure out what will be something that becomes more expensive in the United States, going out and trying to buy it now. And we're also hearing that a number of companies are also going and trying to increase inventory and try to beat the tariffs. So that could actually help GDP in the early part of the new year. But obviously, the uncertainty regarding this is something that the market, you know, markets like certainty, but the uncertainty regarding how this is going to unfold is crucial for the market. The market needs more information. And then we'll assess, is it going to be a 1% at the margin of higher inflation, or is it going to be less than that or more than that? Yeah, well, we're going to have to wait to find all of that out, Quincy. The only thing that will bring certainty is time, unfortunately, in this situation. I want to dig into a couple of the groups that you like. And I'll take industrials, first of all, because that's an interesting one, given that outlook for tariffs here. Why is industrials a group that you like right now? Because we expect to see more and more building. We're going to see building in the United States. That is going to continue. And we're going to see data centers building embedded in industrials as actually the defense names. And we expect to see more and more defense spending, not just in the United States, by the way, but money coming in from our allies. The president is adamant that they're going to have to pick up spending. And they're going to be buying quite a bit from the United States. They'll be buying also their own defense manufacturing names. But a lot of them just come in to the U.S. and buy from the U.S. So the totality of it is we expect to see the industrials do well, continue to do well next year. And I know you also are interested in communication services, Quincy. Can you talk to me about your base case there? Well, yeah. I mean, you know, communication. Companies need it. We need it. And I think it's going to continue. And if the Federal Reserve continues to lower rates, many of them offer very attractive dividends. And that's going to be attractive. It's always attractive when the Fed lowers rates and you look for dividend players and that sector is filled with them. Quincy, good to see you. Happy holidays to you. Thanks for joining us. Thank you so much. Thank you.