Now that the year is drawing to a close and the liquidity is thinner and thinner fund managers are preparing for their Christmas gift: a traditional year-end equity rally, to massage the bottom line. The S&P has seen December rallies in 4 out of the last 5 years and 2011 is most likely not going to be an exception.
I wouldn't bet the farm on a sustainable growth though, because after the punch bowl empties out, there will most likely be a hangover on the stock market.
The S&P 500
The US stock index has ended this year's worst 7 day drop and today it bounced to $1197 from its recent low of $1157. It is almost 3.8% down this month and 4.7% year to date. Even if the year-end rally may take the S&P to the $1220-$1240 region, on the longer term, without a QE3 (watch out for the January FED FOMC committee statement) it will be downhill.
The UK index (which is pretty correlated with the S&P) has also bounced back to $5330 up from $5095. It is also poised for a year-end rally with a target to $5400. There are many more rotten apples in this index (if individual companies matter anymore in this highly correlated, HFT world).
As usual be very wary of investing in a relatively crowded trade, such as the ones described by the following list, courtesy of Lionshare. Even though the financial are valued at extremely low price earnings and book values, there is an inherent reason. The assets are most likely not marked to market and the accounting value shown on the balance sheet doesn't reflect the actual market value.
Another major factor to look out is to avoid the companies with large unfunded pensions as percentage of Market Cap. These have been the favorites of short sellers. From MarketWatch: