NEW YORK (Reuters) - As the curtain falls on a tumultuous year for U.S. stocks, investors are closely monitoring potential influencers that could shape equities in the final weeks of 2023. Notably, the spotlight is on the impact of tax-loss selling and the much-anticipated 'Santa Claus rally.'

The primary driver for stocks remains the anticipated path of the Federal Reserve's monetary policy. Signs of slowing economic growth have fueled speculation that the U.S. central bank might initiate rate cuts as early as the first half of 2024. This prospect has ignited a rally propelling the S&P 500 to a robust 19.6% year-to-date gain, reaching a fresh closing high for the year this Friday.

Simultaneously, this year has seen robust seasonal trends. Historically weak September gave way to a volatile October, yet November, traditionally a strong month, delivered a substantial 9% gain for the S&P 500.

"While we've had a solid year, historical patterns suggest that December can sometimes chart its own course," remarked Sam Stovall, Chief investment Strategist at CFRA Research in New York.

Investor focus in the upcoming week centers on U.S. employment data scheduled for release on Dec. 8, providing insights into the ongoing trajectory of economic growth.

December ranks as the S&P 500's second-best month, averaging a 1.54% gain since 1945, according to CFRA. Additionally, it stands as the month most likely to register a gain, with a 77% success rate, as per CFRA's data.

Research by LPL Financial indicates that the second half of December typically outperforms the first half, with the S&P 500 boasting an average 1.4% gain in the so-called Santa Claus rallies, compared to a modest 0.1% gain in the initial half, dating back to 1950.

However, stocks that have underperformed might face added pressure in December from tax loss selling, a phenomenon where investors shed poorly performing stocks to secure write-offs before year-end. Historical trends suggest some of these shares may rebound later in December and into January as investors revisit undervalued options.

Since 1986, stocks down 10% or more between January and October's end have outperformed the S&P 500 by an average of 1.9% in the subsequent three months, notes BofA Global Research. Stocks like PayPal Holdings, CVS Health, and Kraft Heinz Co are among BofA's recommendations for a potential tax-related bounce, as outlined in a late October report.

Despite the market's substantial year-to-date ascent, a significant portion of gains has been driven by a handful of mega-cap stocks like Apple, Tesla, and Nvidia, with outsized weightings in the index, as reported by S&P Dow Jones Indices. Many other names have lagged behind, with the equal-weighted S&P 500, not skewed by big tech and growth stocks, posting a more modest 6% gain in 2023.

Concerns linger that investor exuberance may have peaked following November's sizable rally, prompting significant movements in some of the market's speculative names. For instance, Roku surged 75%, Coinbase Global climbed 62%, and Cathie Wood's ARK Innovation Fund recorded its best performance in the last five years with a 31% gain.

Michael Hartnett, Chief Investment Strategist at BofA Global Research, highlighted in a Friday note that the firm's contrarian Bull & Bear indicator, considering factors like hedge fund positioning and equity flows, had shifted out of the "buy" zone for the first time since mid-October.<