Get ready for a jolly holiday season, and maybe a stock market rally, Ned Davis Research says

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Bah humbug? Not this year, according to one analysis.

Financial markets have been relatively placid over the past few weeks, making it easy to forget last December. Uncertainty surged, stocks tanked, and $134 billion flowed out of U.S. exchange-traded and mutual funds.

But there’s reason to hope that this year’s fourth quarter won’t be quite as tumultuous. And according to an analysis by Ned Davis Research, markets will not only do better than last year, but may even ring in the holidays with a rally.

First, a few reminders about the 2018 holiday market massacre.

The chart below shows the spike in the CBOE Volatility Index VIX, +2.85%, often referred to as Wall Street’s “fear index.” It measures expected volatility over the coming 30-day period based on S&P 500 options activity.

The Dow Jones Industrial Average DJIA, +0.49%   lost about 12% over the course of the month, while the S&P 500 SPX, +0.56%   fell about 11%. That was the worst December performance for both gauges since 1931 and the biggest monthly decline for either since February 2009. The S&P 500 narrowly skirted meeting the widely used definition of a bear market: the December decline added to a fourth quarter selloff that at its low left the S&P 500 just a whisker away from a 20% pullback from its then all-time high.

Outflows were so violent in December, in fact, that it took most of 2019 for U.S. exchange-traded and mutual funds to regain all the money they lost that month, research published over the summer showed. What’s more, as money trickled back, it went into bond, not stock, funds, suggesting the market turmoil scarred investors.

Read: Investors got spooked by the Christmas market massacre, new fund flow data shows

But conditions are different this time, according to Ned Davis analysts Will Geisdorf and Wenbo Zhou.

Most critically, as MarketWatch observed after a choppy start to October, global central banks are now in easing, rather than tightening, mode.

See: Stormy start to October has stock investors worried: Will Q4 be ‘deja vu all over again’?

“What a difference a year makes!” Geisdorf and Zhou wrote. “Now 85% of the world’s central banks are cutting rates.”

Among other things, that has meant a drastically different path for rates markets, and U.S. Treasurys in particular, this year compared to last. Yields were on the rise in 2018, but have fallen through most of this year. At the start of last December, the 10-year Treasury note TMUBMUSD10Y, +2.61%   yielded about 2.85%, a full percentage point above current levels.

However, the Ned Davis analysts, among others, believe the bond rally may be over, “at least temporarily,” they said. Yields and bond prices move in opposite directions.

There were some other technical factors at work in markets last year. For one thing, Geisdorf and Zhou wrote, global breadth was deteriorating. “By this time last year, most countries had declining long-term trends.” In contrast, 69% of countries are now in up-trends, which Ned Davis defines as rising 200-day moving averages.

One of the best ways to visualize markets of a year ago compared to now is to look at the iShares MSCI ACWI ETF ACWI, +0.60%  . Last year, it peaked in late January and churned lower throughout the year, finally bottoming on Christmas Eve. “This year, ACWI rallied into May and has been consolidating those gains ever since,” Geisdorf and Zhou wrote.

On Monday, ACWI hit a fresh record high.

Related: Is it time for ETFs to get active?

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