Central banks seem to be stepping down from aggressive rate hikes, which may lead to a year-end "Santa Pause" rally for stocks, economists at Charles Schwab report.

"Santa Pause" rally could be in store for markets as the year draws to a close

“Markets seem to have been taking their direction from central banks for most of 2022. While a pivot to rate cuts does not seem likely in the near term, if central banks signal a step down in the size of the rate hikes or a pause, stocks may breathe a sigh of relief.” 

“Stepping down from aggressive rate hikes could help boost stock markets. Since signs of stepping down began to emerge at the start of October, the MSCI EAFE Index of international stocks climbed nearly 10%. Stock markets outside the US that are outperforming the S&P 500 Index this year include many countries where the central banks are stepping down.”

“There can be no guarantee that central banks will continue to step down the pace of their hikes or pause them, but if they do it is possible a ‘Santa Pause’ rally could be in store for markets as the year draws to a close.”