To The Moon

I. Performance and Valuation of Global Equity Indices

Data Source: Bloomberg, Complied by Tiger Brokers

II. Key Market Themes

i. Did the Santa Claus Rally Disappoint? Was This Year an Extreme Case?

• Over the past two weeks, the market has entered a lull with little news, marking the annual "Santa Claus Rally" period for U.S. equities. However, this year’s holiday season did not bring significant gains. Instead, the three major U.S. indices experienced varying degrees of pullbacks, prompting pessimism among investors worried about a potential market top. To examine whether the “Santa Claus Rally” truly exists and if this year is an outlier, we analyzed data from the past 40 years.

• We define the "Santa Claus Rally" as the two weeks surrounding January 1. Historical data shows that during this period, the S&P 500 $标普500(.SPX)$ and Nasdaq Composite $纳斯达克100指数(NDX)$ have posted average gains of 1.06% and 1.41%, respectively—more than double their typical two-week performance. In contrast, this year’s rally was notably weaker, with the S&P 500 and Nasdaq gaining only 0.24% and 0.21%.

• The statistics confirm the existence of the "Santa Claus Rally," but a deeper analysis suggests it is primarily driven by low market activity, as investors typically take time off and trading volumes drop. This leaves markets prone to continuing previous trends. While the Santa Claus Rally can serve as a calendar effect reference, it should not be used to predict future performance. This week’s key indicators, including the Services PMI, non-farm payrolls, and unemployment rate, will have a more substantial impact on the market's trajectory.

Data Source: Bloomberg, Complied by Tiger Brokers

Data Source: Bloomberg, Complied by Tiger Brokers

ii. U.S. Stock Market Wraps Up 2024: Are Valuation Risks and Concentration Levels Too High to Sustain Growth?

• Last week, 2024 came to a close with the S&P 500 posting a robust annual gain of 25.00%. Historically, the S&P 500's long-term annualized return hovers around 10%, making back-to-back 20% annual gains over the past two years a rarity in the past half-century. The last such streak occurred during the late 1990s, ahead of the dot-com boom.

• However, unlike past rallies, the current surge is largely valuation-driven. Since the start of 2023, the S&P 500’s price-to-earnings (P/E) ratio has risen by over 40%, while earnings (EBITDA) have only increased by 15%. In other words, about 80% of the recent gains are attributable to multiple expansions rather than improved earnings. This has pushed valuations to levels approaching those seen during the dot-com bubble's peak in 2000.

Data Source: Bloomberg, Complied by Tiger Brokers

Data Source: Bloomberg, Complied by Tiger Brokers

• Meanwhile, market concentration has reached unprecedented levels. From the S&P 500 to the top 50 stocks, the "Mega 7," and ultimately the "Mega 3," market dominance has narrowed dramatically, with Nvidia $英伟达(NVDA)$ emerging as the clear standout. According to Goldman Sachs, the top 10 companies now account for nearly 38% of the S&P 500's total market capitalization. The market cap of the largest company is over 700 times that of companies at the 75th percentile—a level of concentration not seen since the Great Depression in the 1930s.

• As noted in our 2025 outlook, U.S. stock valuations are excessively high by any measure. If corporate earnings growth slows, the market faces the risk of significant corrections. A drawdown of over 30% in 2025 is entirely possible. Investors should remain vigilant and exercise caution in their trading strategies.

Data Source: Goldman Sachs

Disclaimer

1. The information contained in this document is for reference only and does not constitute any financial advice or a transaction offer, solicitation, suggestion, recommendation or any guarantee for any financial product, strategy or service. You should make your own investment decisions and bear the risk of investment responsibility independently.

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