Have investors been nice or naughty this year?

Fed Chair Jerome Powell hasn’t decided whether we’ll get the famous Santa Claus rally just yet.

Santa rally? December has historically been a strong month — averaging a 1.6% return since 1945. Per Barron’s, investors typically fund their retirement accounts in December.

The S&P 500 delivered its second positive month in a row for the first time since the summer of 2021.

But don’t get too comfortable. December could turn out to be a wild month with two important dates coming up:

• CPI (inflation) report coming up on Dec. 13.
• The Fed is expected to deliver its next rate hike on Dec. 14.

Why so important? “Clearly Fed action is going to be the driving factor for every asset class over the coming weeks,” per the CIO of Premier Miton Neil Birrell (FT).

JPOW gives investors a peek into their stockings

In a speech yesterday, Powell hinted at what we could expect for the coming rate hike:

• “The time for moderating the pace of rate increases may come as soon as the December meeting.”
• Unless inflation comes in higher than expected, we’re likely on our way to a 0.50 percentage point hike.

Time to celebrate? Not so fast. We still have some bears poking around.

What happens in 2023 is anyone’s guess

And here are the predictions of two major investment banks:

1/ JPMorgan: The S&P 500 to fall 15% by March 2023 (BBG). JPM thinks quantitative tightening (reducing the money supply in the economy) — is the primary concern.

2/ Morgan Stanley: The S&P 500 to land between 3,000 and 3,300 (16-24% downside) in the first four months of 2023 (CNBC). Companies have been revising their earnings forecasts down — and MS thinks that’ll slow by April 2023.