Former Barack Obama supporter Jim Cramer on Friday said the stock market would have a huge rally if Scott Brown defeats Martha Coakley in Tuesday’s special senatorial election in Massachusetts.

“I think investors who are nervous about the dictatorship of the Pelosi proletariat will feel at ease, and we could have a gigantic rally off a Coakley loss and a Brown win,” said Cramer on Friday’s “Mad Money.”

“It will be a signal that a more pro-business, less pro-labor government could be in front of us.”

The often outspoken CNBCer marvelously declared it a “Pelosi politburo emasculation” (video embedded below the fold with partial transcript):

JIM CRAMER, MAD MONEY HOST: We know it’s earnings season. You can no more avoid it than you could avoid getting your report card or worse – your parents getting your report card. You saw that today when people sold the market on allegedly weak earnings from Intel and JP Morgan, emphasis on allegedly. The Dow getting hurt bad, down a hundred big ones. S&P giving back more than a percent. But that doesn’t mean that the most important factor in next week’s game plan is an earnings report. Far from it. Come with me. The number you need to watch is the number that Scott Brown racks up against Martha Coakley in this amazing Massachusetts Senate race. I say amazing ’cause this was supposed to be a walkover. I mean, even a few weeks ago it was a lock for Democrat Coakley. But now everything’s up in the air, and a Brown win would be devastating for the president’s agenda. Let’s put Brown, okay, and I don’t mean UPS which I happen to own for my charitable trust. Particularly on healthcare reform, because Republican Brown has said he will definitely vote against the plan.

Brown in the Senate? That wrecks the 60-vote supermajority the Democrats have been counting on. It could spell the end for this almost year-long nightmare of a piece of healthcare legislation.

What does a Brown election mean larger than this? Well, first you’re going to get a knee-jerk rally in all the so-called penalized stocks — the HMOs, the drugs, the medical device-makers. I call it “knee-jerk,” though, because these stocks have been on fire for months. Look at Cramer fave WellPoint, or United Health. 52 week high. 52 week high. Merck, 52 week high. It’s been clear as a bell that the healthcare reform wasn’t going to affect most healthcare stocks. That’s versus what we thought last year.

More important, though, I think investors who are nervous about the dictatorship of the Pelosi proletariat will feel at ease, and we could have a gigantic rally off a Coakley loss and a Brown win. It will be a signal that a more pro-business, less pro-labor government could be in front of us. Hey, would you say it is more China like perhaps? No, we can never be as capitalist as the Communist Chinese. But how about a little bit less like the old Soviet Union? Yeah, that would be a bit more like it. Pelosi politburo emasculation! Everything from the banks, which are usually in the Democrats’ penalty box, or the oils which are despised by this administration for being carbon, could be propelled dramatically higher all of this Tuesday night. Delicious. Absolutely delicious!

Sunday, 20 Dec 2009 02:50 PM

Skeptical kids can doubt whether Santa Claus exists. But for stock-market statisticians, there’s not much debate: The year-end lift known as the Santa Claus rally is no myth.

The stock market typically posts modest, but reliable, gains in late December into the beginning of early January.

“It’s pretty much like clockwork,” says Jeff Hirsch, editor of the Stock Trader’s Almanac, which tracks market trends. “And when it doesn’t happen, it can be a very helpful warning of impending trouble.”

This year the stock market began December in somewhat typical fashion with a stagnant first half of the month. The Standard & Poor’s 500 Index is up just 0.6 percent so far in December, and the Dow Jones industrial average is down 0.2 percent.

That leaves room for the market to snap back by the end of the year, although stocks are still facing headwinds from lingering doubts about the economy as well as trepidation among investors about the huge gains logged so far this year. The S&P is already up 22 percent in 2009, the Dow 18 percent.

The entire period around the end of the year, though, has a bullish track record.

Consider:

• November through January tends to be the best three-month span for stocks. Over the past four decades the average gain from Nov. 20 through the end of January has been 4.2 percent, or an annualized rate of 23 percent, according to James Stack, president of InvesTech Research in Whitefish, Mont.
• December is the best single month, with the Standard & Poor’s 500 stock index averaging a 1.6 percent gain. The first December after a bear market ends performs even better, averaging 3.1 percent.
• The S&P has increased an average of 1.5 percent during the seven trading days that start with Christmas Eve and end with the first two days in January since 1950. That’s the widely recognized period for the Santa Claus rally, as first identified in 1972 by Stock Trader’s Almanac founder Yale Hirsch, Jeff’s father.
• Stocks went up in 12 of the last 15 of those year-end periods.

To better understand what drives the Santa Claus rally, let’s look at the variety of positive factors for the stock market that usually come together around this time of the year.

The holidays are the strongest retail season of the year, giving a boost to the economy while also generating positive headlines. Year-end investment reports also tend to offer upbeat outlooks for the coming year, and often plug hot stock picks just as investors are repositioning their portfolios.

And since lots of investors are already in a good mood this time of year anyway, more people tend to be buying rather than selling around the holidays.

“It’s one of the most reliable rallies of the year,” says Scott Marcouiller, senior equity strategist for Wells Fargo Advisers. “The probability is very high that we get a move up before the end of this year.”

Also, investors who might normally sell stocks for tax purposes late in the year could be more likely to hold off this time around. Since this stock market rally is only nine months old, any gains from stocks bought this year would be considered short-term profits by the IRS. That would mean a much higher tax rate than gains on assets held for more than a year.

Even those who aren’t interested in buying stocks during the holiday season would do well to keep an eye on the market. In years when there hasn’t been enough enthusiasm for a Santa Claus rally, it’s often been a sign that turmoil lies ahead.

After 1999, for example, when there was no Santa Claus rally, the market tanked in 2000. And a late-year drop two years ago was a forerunner to a disastrous 2008.

Some market experts take dim views of trends based on the calendar. But the Santa Claus rally still has plenty of believers on Wall Street.

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