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The upcoming holiday-shortened week will cap off a brutal year for Wall Street as 2022 draws to a close.

US stock and bond markets will be closed on Monday, December 26th, in celebration of Christmas Day.

Balance sheets and economic calendars will be light, with much of the business world off until next year.

Traders who are working over the holiday period will get wholesale and retail inventory readings, weekly unemployment claims and the latest S&P CoreLogic Case-Shiller home price index.

When investors return from a long weekend on Tuesday, hopes will be high for a Santa Claus Rally – a seasonal stock market rally that occurs in late December. But with selling pressures remaining due to fears of an impending recession, the season’s favorable pattern could hurt this year.

The Santa Claus Rally is typically defined as the last five trading days of the year and the first two of the new year, with Yale Hirsch, creator of the Stock Trader’s Almanac, coining the term in 1972.

During that period, the S&P 500 has historically recorded an average gain of 1.3% since 1950, according to data from LPL Financial. This compares to an average return of 0.2% for all seven-day rolling returns.

Santa Claus watches the 98th Annual Christmas Tree Lighting Ceremony at the New York Stock Exchange on December 1, 2021 in New York City.  (Photo by Bryan R. Smith / AFP) (Photo by BRYAN R. SMITH / AFP via Getty Images)

Santa Claus watches the 98th Annual Christmas Tree Lighting Ceremony at the New York Stock Exchange on December 1, 2021 in New York City. (Photo by Bryan R. Smith / AFP) (Photo by BRYAN R. SMITH / AFP via Getty Images)

More importantly, the Santa Claus Rally is often seen as an indicator of future market performance. The S&P 500 historically underperformed in January and the following year, when a year-end rally did not occur, LPL Financial indicated.

Yale Hirsch even prophesied, “If Santa Claus doesn’t call, the bears might come to Broad and Wall.”

“It’s not too late for Santa’s rally, but unfortunately the positive inflation data has been overshadowed by the Fed’s harsh language and the next recession they orchestrated with their aggressive rate hikes,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance said in a note.

With the year coming to a close, 2022 is on pace for its worst annual performance since the global financial crisis in 2008. It will also mark the end of three straight years of gains for the stock market and a dramatic drop from 2021, which saw the S&P 500 return nearly 27%.

The S&P 500 historically underperforms in January and the following year when there is no Santa Claus Rally at the end of the previous year.  (Credit: Adam Turnquist, Chief Technical Strategist, LPL Financial)

The S&P 500 historically underperforms in January and the following year when there is no Santa Claus Rally before. (Credit: Adam Turnquist, Chief Technical Strategist, LPL Financial)

Much of this is due to the historic actions of global central banks, which raised interest rates in concert to contain the highest inflation in decades after a period of broad fiscal stimulus. The US Federal Reserve has raised interest rates by a cumulative 4.25% this year, the highest since 1980, while also signaling that further hikes are likely next year.

After central banks delivered their year-end increases last week, equity markets experienced their worst-ever exodus, recording outflows of nearly $42 billion, according to figures from Bank of America, Citigroup and Barclays. who cited data from EPFR Global.

Looking ahead, there may not be much upside for equity investors in the year ahead, with monetary policymakers across the world firmly stating that they will certainly continue to tighten financial conditions next year until price stability be firmly restored — a reality that has many of Wall Street’s biggest names heading for a long road to nowhere for US equities.

Last week, veteran hedge fund manager David Tepper said he was “shorting equity markets” due to concerns that rising interest rates would further hurt equities.

“I think the upside/downside just doesn’t make sense to me when I have so many central banks telling me what they’re going to do,” Appaloosa Management’s founder and chairman said Thursday in an interview with CNBC’s Squawk Box.

“Sometimes they tell you what they are going to do and you have to believe them.”

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economic calendar

Monday: No notable reports scheduled for release. Markets closed for the Christmas holiday.

Tuesday: wholesale stocksmonth by month, Preliminary November (0.5% in the previous month); Advance Trade Balance of GoodsNovember (-$96.8 billion expected, -$99.0 billion during prior month); Retail Stocksmonth-over-month, November (-0.1 expected, -0.2% previous month); FHFA Housing Price Indexmonth-over-month, October (-0.6% expected, -0.1% previous month); S&P CoreLogic Case-Shiller 20-City Compositemonth-over-month, October (-1.40% expected, -1.24% previous month); S&P CoreLogic Case-Shiller 20-City CompositeYoY October (8.20% expected, 10.43% Mt); S&P CoreLogic Case-Shiller US National Home Price Index, in the annual comparison, October (10.65% in the previous month); Dallas Fed Manufacturing ActivityDecember (-14.4 over the previous month)

Wednesday: Richmond Fed Manufacturing IndexDecember (-9 in the previous month); Pending Home Salesmonth-over-month, November (-1.0% expected, -4.6% previous month); Pending Home Sales NSAyear on year, November (-36.7% in the previous month)

Thursday: Initial unemployment claimsweek ended December 24 (216,000 during the previous week), Continuing Claimsweek ended December 17 (1.672 million the week before),

Friday: No notable reports scheduled for release.

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Earnings Calendar

Monday: No notable reports scheduled for release. Markets closed for the Christmas holiday.

Tuesday: No notable reports scheduled for release.

Wednesday: Cal-Maine Foods (CALM)

Thursday: No notable reports scheduled for release.

Friday: No notable reports scheduled for release.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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