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TORONTO, Dec 19 (Reuters) - A "Santa Claus" rally has become a Toronto Stock Exchange tradition, but the economic "Grinch" appears to have stolen Christmas this season.
Equity indexes usually rise this time of year as investors anticipate an injection of funds into the market in early January and fund managers dress up their portfolios by loading up on the year's solid performers.
This year, too many factors -- a collapse of consumer confidence, tight credit, a dismal economic outlook and worries over the future of the auto sector -- have all but erased hopes of the kind of rally that the TSX has experienced in nine of the past 10 years.
In 2007, the market rallied 475 points in the final eight sessions to cap off a gain of 7.2 percent for the year.
"I think everybody wants to believe in Santa after the year that we've had," said Patricia Croft, chief economist at RBC Global Asset Management.
"It continues to be a tug of war of various factors but I think there are a lot of people very anxious to close the books on this year and to believe in Santa."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE, which is down more than 40 percent so far this year as the global credit crisis worsened, is showing little hope of any sustained rally going into 2009.
A long-anticipated U.S. auto aid package on Friday spurred a temporary rise, but expectations of more tough times ahead have forced investors to retrench.
"Everyone seems to be so beaten up and so gunshy about doing anything at all, that I think a lot of people have just thrown up their hands and decided to deal with it next year," said Rick Hutcheon, president and chief executive at RKH Investments.
"If there is a rally everyone is going to be happy, but there is little evidence that anything is coming."
Even so, some believe Christmas may have come early when Toronto's main index surged higher for six straight sessions in late November for a one-week gain of about 13.7 percent.
This was followed up by two days of gains on Monday and Tuesday in reaction to the U.S. Federal Reserve's decision to slash interest rates to near zero.
But the dark clouds have been too much to overcome.
"This year the credit crisis is much worse than it was last year and people are extrapolating that the economy is going to be worse so we might have the situation that there is no Santa Claus rally here," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.
"Fundamentally it is tough to argue what might make the market go up."
A new U.S. administration under Barack Obama and his new economic policies might boost the markets, but that is not expected until late January, at the earliest. Analysts say Obama's stimulus plan could cost as much as $700 billion.
"There is going to be an awful lot of optimism and hope as we come to January 20 and the official launch of the Obama administration," Croft said. "That may set the stage for a bit of a rally, but for now and until the end of the year there will be lots of volatility."