It's been a nerve-racking time recently for those following the S&P/ASX 200 Index (ASX: XJO).
The COVID-19 Omicron variant battered confidence a couple of weeks ago, but this week the index rallied hard to recover those losses.
If this were a plane ride, a few people might be reaching for the vomit bag.
According to Shaw and Partners portfolio manager James Gerrish, the ASX 200 was now within 3% of its all-time high just moments after Omicron scared some pessimists away from ASX shares.
He wrote in his Market Matters (MM) newsletter on Thursday that his team is optimistic for the ASX 200 as 2021 winds down.
"MM is still bullish targeting the 7,700 to 7,800 area into early 2022," he said.
"Another 4% to 5% rally — although higher levels cant be ruled out as the trend's clearly up."
To truly put their money where their mouth is, Gerrish's flagship growth portfolio currently only holds 1% in cash.
"The important factor to remember is MM [is] fully committed to stocks, as we basically have been since the start of the pandemic," he said.
"If it was a game of poker we would be all-in!"
Image source: Getty Images
Why would the ASX 200 rise to end 2021?
Statistical patterns give Gerrish much confidence heading into the last fortnight before Christmas.
"If we assume (dangerous word) that 7,168 is the low for this December we could easily see 7,500 to 7,600 in the coming weeks, just through [simple] extrapolation of the average monthly ranges post COVID," he said.
"Over the last 40 years the ASX has rallied 85% of the time from mid-December until January, delivering an average return of 2.9%."
The Australian stock market is dominated by the finance and mining sectors, and the former has always done well at this time of the year.
"The influential banking sector has rallied 100% of the time since 1992 with an average return of 7% — a potentially huge tailwind for the ASX."
But what to do in 2022?
Gerrish wrote that his team will focus on its existing holdings as share prices rally heading into the new year.
"Tis the time to be merry and boring!"
But what about when the ASX 200 peaks sometime in 2022?
Then the Market Matters experts will sell some shares off to increase their cash holdings.
"We could comfortably see ourselves taking cash levels significantly higher in Q1 of 2022 while we reassess what comes next as interest rates start to rise."
