Four Fed Hikes, One Year Later The Federal Reserve’s (Fed) final policy meeting of 2019 starts today and will conclude tomorrow with the release of the Fed’s policy statement, updated economic projections, and a press conference by Fed Chair Jerome Powell. After lowering its main policy rate at each of its last three meetings, the Fed is widely expected to pause as it gauges the impact of the recent cuts and the state of the economy. It was a little less than a year ago, on December 19, 2018, that the Fed announced the fourth rate hike of 2018 and the ninth of the current expansion. Markets roundly jeered the move. The S&P 500 Index, already down more than 13% from its all-time high in September 2018, fell to 19.8% off the all-time high by December 24, just a hair below the customary 20% decline that marks a bear market. The Fed quickly adjusted its messaging and, as shown in the LPL Research Chart of the Day, the S&P 500 has climbed nearly 25% year to date. While appearing to be reasonable based on data available at the time, in retrospect, that fourth rate hike may looks like a mistake. What have we and the Fed learned in the past year? Market signals matter. We don’t want markets to drive the Fed, but markets can provide useful feedback that economic data misses. Markets were signaling that rates were likely too high for the environment we were in. Trade uncertainty has weighed on the U.S. and global economy more than expected, and the Fed probably underestimated the impact. There was still some slack in labor markets, and inflation remains contained for now. Weaker growth has kept inflation in check and has easily outweighed the price impact of tariffs. “There’s a learning curve for every Fed chair, and Jerome Powell has been no exception,” commented LPL Research Chief Investment Strategist John Lynch. “But we’ve been encouraged by the Fed’s policy approach in 2019 and think that a pause is appropriate given the more positive signals we’re getting on the economy.”
Small-caps poised for a mid-December surge Small-cap stocks tend to outperform big caps in January. This is frequently referred to as the “January Effect,” the tendency is clearly revealed by the graph above. Daily data since 1979 for the Russell 2000 index of smaller companies are divided by the Russell 1000 index of largest companies, and then compressed into a single year to show an idealized yearly pattern. When the graph is descending, large caps are outperforming smaller companies; when the graph is rising, smaller companies are moving up faster than their larger brethren. In a typical year the smaller fry stay on the sidelines while the big boys are on the field. Then, around late November, small stocks begin to stir and in mid-December, they take off. Anticipated year-end dividends, payouts and bonuses could be a factor. Also, it is at this time of year that tax-loss selling abates and traders often pick up beaten-down, oversold small-cap shares. Other major moves are quite evident just before Labor Day—possibly because individual investors are back from vacations. The move this year ahead of Labor Day (red line) began on cue, but quickly reversed before surging higher into mid-September. Small caps typically hold the lead through the beginning of June, though the bulk of the move is typically complete by early March.
The Best Performing Stocks of 2019 Wed, Dec 11, 2019 The Russell 3,000 contains US stocks from large-caps to small-caps that account for more than 98% of the market cap of publicly traded US stocks. Below we show the average YTD total return of Russell 3,000 stocks in each sector through the close on December 10th. While the cap-weighted Energy sector of the S&P 500 is up slightly year-to-date, the average US Energy stock across market caps is actually down 10% so far in 2019. On the flip side, the average Technology stock is up 34.5% on the year, which is more than 11 percentage points higher than the average for all stocks in the Russell 3,000. Other sectors that have seen their components outperform the average include Health Care, Real Estate, and Industrials. Below is a look at the 40 best-performing stocks in the Russell 3,000 so far this year. The top-performing stock is Axsome Therapeutics (AXSM), which has developed a promising narcolepsy drug. AXSM is currently up 1,628.7% in 2019 -- more than double the next best performer. You'll notice that the large majority of names on the list are biotech companies in the Health Care sector. When biotech is working, this is usually the case. The potential upside for drugs and treatments that ultimately work is enormous, and during up-trending markets when investors are willing to take on risk, small-cap biotechs absolutely fly. To clean up the list a little, below we show the best performing non-Health Care stocks in the Russell 3,000 year-to-date. EverQuote (EVER) ranks first with a gain of 761.5%, followed by Cardlytics (CDLX), Enphase Energy (ENPH), and Roku (ROKU). You've likely not heard of most of the names on these two lists, but we'd recommend sitting down and researching them just to get a better sense of what's REALLY been working lately.
Awaiting Mid-Month Market Rally Resumption & Santa According to CMEGroup’s FedWatch Tool, there is currently a 97.8% chance the Fed will take no action on interest rates during its last meeting of 2019 and the decade. We will get a press conference and an update to their Summary of Economic Projections that may, through a subtle nuance give some insight into next year and beyond, but here again, it seems unlikely there will be any substantial changes. Rather, let’s take a quick look at the balance of December could unfold based upon the last twenty-one years. For the most part, this December have unfolded in rather typical seasonal fashion. Weakness at the start of the month was a little greater than usual, but the following rally was also above average. Currently the major indexes are navigating the often-dull period from around the fourth trading day pf the month through the eighth. Afterwards, later this week into early next week, another patch of weakness is possible. Then right around mid-month, the rally that began in October and ran through November, is likely to resume. The resumption could be bumpy but once quarterly options expiration passes our Santa Claus Rally will begin. Since 1969, S&P 500 has enjoyed an average gain of 1.3% during the Santa Claus Rally that spans the last five trading days of this year and the first two trading days of next year.
No Quitters in These SOX Thu, Dec 12, 2019 With the Philadelphia Semiconductor Index (SOX) up over 50% on the year, there's more than a bit of skepticism on the part of analysts as to whether the group can keep up the momentum heading into 2020. From early November to the first days of December, those concerns were reflected in the performance of the SOX as it dropped close to 6% and underperformed the broader market by a wide margin. In the last several days, though, the group has seen a strong rebound. Last week, the index broke its downtrend, and now in just the last couple of days, the SOX bounced right off of support at its intraday downtrend. Impressively, the rebound in the SOX actually propelled the index to a slight new all-time high yesterday. As mentioned above, the rally of the last two days came as the sector bounced right at support from its intraday trendline, but the impetus for the entire rally off the early December lows also coincided with an important support level. As shown in the one-year chart below, in that decline from the November peak, the sellers dried up just as the SOX touched its 50-day moving average (DMA), and once that held, the buyers came rushing in.
Homebulilders Exuberant Mon, Dec 16, 2019 Bullish sentiment towards the stock market has been lacking for years now, but it looks like we finally found out where all the bulls went - to the housing market! This morning's December homebuilder sentiment report from the NAHB blew the doors off expectations. While economists were forecasting the headline index to come in at a level of 70 (unchanged from November), the actual reading rose to 76 from a seasonally adjusted November reading of 71. Not only was December's reading the biggest beat relative to expectations since March 2017, but it was the highest overall reading since 1999! The table below breaks down this month's report by its components. December saw big increases in Present Sales and Traffic, but even Future Sales saw a modest bounce. On a regional basis, sentiment in the Northeast and West declined as these regions still have a lot of exposure to high tax states, but sentiment in the Midwest surged by a record 15 points. The chart below the table shows trends in sentiment by region. With this month's data, sentiment in the Midwest is back near its cycle highs, while sentiment in the South is at its highest level of the cycle. Meanwhile, sentiment in both the Northeast and West declined, but both regions are coming off levels that were near the highest of the recovery. Finally, homebuilder sentiment has really taken a 180-degree turn in the last 12 months. Closing out 2018, housing was a big question mark as the impact of the tax bill and tighter monetary policy both acted as stiff headwinds. As the FOMC has pivoted, though, so too has the housing market, and this year's 20-point jump in homebuilder sentiment will go down as the third-best year for sentiment in the history of the survey. The only stronger years were 2012 (26 points) and 1992 (21 points).
Seasonality Tailwind Mon, Dec 16, 2019 December has historically been a strong month for equities, although it certainly wasn't last year. At this point in the month last December, the S&P was already down more than 5% month-to-date, and the index would fall another 9.6% over the next week and a half before making its YTD low on Christmas Eve. December 2019 looks a lot different than December 2018 so far at least, as the S&P is currently sitting on a month-to-date gain of just under 1%. Below is a chart we published in our December Seasonality report sent to members at the end of November. It's a composite intraday chart of the S&P throughout the month of December from 1983 through 2018 as well as from 2009 through 2018 (the current bull market). It basically shows the average path that the S&P has taken during the month of December. As you'll notice, the first half of December has actually been the weaker half of the month for stocks, and it's the second half of the month where the gains really kick in. We're just past the halfway point of December 2019 now, so investors certainly have seasonality as a tailwind from here through year end. Our Seasonality Tool shows similarly bullish prospects. When you visit our Seasonality page, you always see the gauges below which show the S&P 500's median change over the next week, month, and three months (from the current day of the calendar year). As shown below, from today (12/16), the S&P has historically seen a median gain of 1.07% over the next week, a median gain of 2.94% over the next month, and a median gain of 5% over the next three months. All three periods rank in the 87th percentile or higher for market gains based on the calendar year.
Global Stock Breakout Mon, Dec 16, 2019 One way to monitor internals is simply looking at the number of new 52-week highs and lows made each day in our huge database of stocks and ETFs. As shown below, on Friday we saw 596 new 52-week highs and just 36 new lows. That's a huge number. Looking at price charts across a range of US and country stock market index ETFs, we pretty much see breakouts everywhere. In the US, we saw large-caps (SPY, DIA, QQQ, VTI), mid-caps (IWR), and small-caps (IWM) all break out to new highs last week, while we saw the same for countries like Germany (EWG), Japan (EWJ), France (EWQ), and the UK (EWU). Below is a sampling of these charts pulled from our popular Chart Scanner tool. Our Chart Scanner lets users easily browse through hundreds of charts in a matter of minutes. If you like a chart or want to monitor it going forward, you can click the "bull" icon and it will go into a special folder that contains all of the charts you tag as bullish. You can do the same thing for charts you think look negative with the "bear" icon. If you use technical analysis as part of your investment strategy or simply like to look at charts to gauge overall trends for various asset classes, we can't recommend the Chart Scanner tool enough. We use it every single day internally.
S&P 500's Earnings Yield Is Average Mon, Dec 16, 2019 While the price-to-earnings ratio is perhaps the most common valuation metric, the reverse of the ratio is another way to gauge valuations. Called the earnings yield, this is calculated by dividing earnings by price rather than the other way around which would result in the P/E ratio. In the Valuation Section of our Annual Outlook Report released last week, we took a look at the S&P 500's earnings yield relative to corporate bonds. An excerpt is below. To view the entire section and gain access to all of the other sections (plus the rest of our research offering), join Bespoke Premium with this 2020 special offer. Comparing the earnings yield of the S&P 500 to the yield on the 10-Year US Treasury (a so-called risk-free asset) has the potential to be an apples to oranges comparison as stocks are considered a risk asset and treasuries are considered a ‘risk-free’ rate of return. To help take that into account, the chart below compares the earnings yield on the S&P 500 to the yield on corporate bonds using the average yield of Moody’s AAA and BAA corporate indices. The earnings yield of the S&P 500 relative to corporate bond yields is currently right inline with its historical average. Looking back at this relationship over time, pre-1960 this ratio was much higher than average. Then, it was much lower than average for the next 50 years. In the last decade now, the ratio has stayed pretty close to its historical average. Not too hot. Not too cold.
European Stocks Record Breakout Tue, Dec 17, 2019 In the final weeks of the decade, equities around the globe have broken out to at least 52 week highs if not record highs as is the case for the S&P 500, and now the Eurozone Stoxx 600. As shown in the first chart below, the Eurozone Stoxx 600 -- priced in local currency (euros) -- has finally made a new all-time high. Even as the S&P 500 has more than doubled its pre-Financial Crisis high made in 2007, the Stoxx 600 has just recently managed to take out its 2007 high. And this week the Stoxx 600 has taken out its 2015 high as well, which marks a significant breakout. Notably, though, the 2015 breakout to new highs turned out to be a huge pump fake, and it has taken more than four years to get back to these levels. While the Stoxx 600 priced in euros has broken out to new highs, it still has a ways to go when priced in dollars (how a US investor in the index has fared). As shown in the second chart below, the Stoxx 600 priced in dollars is still 17.5% below its October 2007 all-time high and 7% below its more recent high from 2018. Below is a relative strength chart of the Stoxx 600 (Europe) versus the S&P 500 (US) over the last 20 years. When the line is rising, it indicates European outperformance, while a falling line indicates US outperformance. After outperforming the US for most of the 2000s decade, European stocks have massively underperformed the US for the last 10+ years. When this period of underperformance comes to an end is anyone's guess, but from a purely mean reversion standpoint, the Eurozone is about as due as it gets!
December options expiration week historically bullish December’s option expiration has a solidly bullish history. In fact, the week of options expiration and the week after have the most bullish record of all quarterly option expirations (page 108, Stock Trader’s Almanac 2020). Since 1982, DJIA has advanced 28 times during December’s options expiration week with an average gain of 0.55%. S&P 500 has a similar, although slightly softer record. However, the record is not pristine. Last year, 2018, DJIA and S&P 500 suffered their worst weekly loss as the Fed remained hawkish and determined to raise interest rates even as growth was slowing and Treasury bond yields were falling. In 2011, Europe’s debt crisis derailed the market. In 2012, the threat of going over the fiscal cliff triggered a nearly 2% loss the week after.
S&P 1500 Best Stocks of the Decade Wed, Dec 18, 2019 As the year and decade winds down, no recap would be complete without a discussion of the best-performing stocks of the decade. Since the S&P 1500 is up close to 200% in the last ten years, there have been a number of big winners. In the table below we list the 25 best-performing stocks that are currently in the S&P 1500 that were also around in their current forms ten years ago. Topping the list of biggest winners is a company most people have never heard of - Patrick Industries (PATK). Ten years ago, the stock was a microcap with a market cap of just $22.3 million, but during the last ten years, PATK's stock has rallied more than 4,500%! So what cutting edge technology is PATK involved with? 5G? AI? The Cloud? No, no, and no. According to the company's website, PATK is a major manufacturer and distributor of component and building products for the Recreational Vehicle, Manufactured Housing and Marine industries. There you have it. Not every big winner in the stock market has to be a tech company. While you may have never heard of PATK, the next two stocks on the list are much more of household names. Netflix (NFLX) has rallied just under 4,000% in the last decade while Domino's (DPZ) is up over 3,300%. Can you think of a better way to spend a cold winter afternoon than watching Netflix and dialing up some Domino's? Besides these three names, other notable stocks on the list of biggest winners include Broadcom (AVGO), United Rentals (URI), Regeneron (REGN), Ulta Beauty (ULTA), and Amazon.com (AMZN). Although AMZN already had a market cap of $58 billion ten years ago, it has defied all growth expectations and still managed to rally more than 1,200% this decade. When it comes to market cap, AMZN is clearly the exception more than the rule. So if you are looking to score one of the biggest winners in the next decade, you're unlikely to find one among the FANG stocks or in the mega-cap S&P 100 for that matter. Besides the 25 names listed below, another 17 have rallied more than 1,000% over the last ten years. Of those 42 total names, only three had market caps above $10 billion (Amazon.com, NVIDIA, and Mastercard), and just 15 even had market caps above $1 billion. Overall, the average market cap of the 42 ten-baggers was $3.3 billion at the start of the decade, while the median market cap was just $565 million. The fact that most of the biggest winners of the last ten years weren't large caps to begin with certainly doesn't mean that large-cap stocks are a bad investment. There are plenty of stocks that, even though they weren't the best performers, still performed admirably over the last ten years. Additionally, while the last decade has been great for the stock market, in the event that the next decade isn't as good, large-cap stocks are likely to collectively provide a lot more stability than their small and micro-cap peers.
Don’t Fear the Repo December 18, 2019 The fourth quarter is winding down, and investors are getting nervous that volatility in the short-term lending market could flare up once again. Rates on repurchase agreements (repos) jumped in September 2019 amid a shortage of cash available to lend, forcing the Federal Reserve (Fed) to restore balance in the system by purchasing U.S. Treasuries and other securities from firms. We covered that episode in our blog, “The Repo Market’s Perfect Storm,” on September 27. The Fed’s actions eventually stabilized repo rates, and financial markets ultimately shrugged off the issue. The S&P 500 Index has climbed 7.3% since the end of September, and other credit markets barely registered the event. “September’s bout of volatility was concerning, but it was the perfect storm of unusual circumstances,” said LPL Financial Chief Investment Strategist John Lynch. “Volatility in the repo market could increase as quarter-end nears, but we expect a Fed intervention will smooth any bumps out.” Here are a few reasons we’re not concerned about a repo-market meltdown: Repo market volatility has been seasonal. As shown in the LPL Chart of the Day, repo market liquidity gaps are common around quarter-end as corporate demand for cash typically increases. To be sure, market dynamics could increase the likelihood of liquidity gaps. Treasury issuance will likely remain high amid a ballooning U.S. budget deficit, and companies’ cash needs will persist. The repo market has shrunk considerably. It’s unlikely that repo market liquidity gaps will become systemic issues. The repo market is a fraction of the size it was before the 2008 financial crisis, when surging lending rates ultimately led to a significant breakdown in fixed income markets. Even September’s episode was relatively localized. The overnight repo rate jumped about 60 basis points (0.6%), a move that pales in comparison to the repo market swings in late 2007. The 1-month London Interbank Offered Rate (LIBOR) climbed less than 10 basis points (0.1%) over the same period. These rates settled down quickly, thanks to the Fed’s quick action. The Fed is watching. The Fed has enacted minor liquidity measures in repo markets for several years now. Since September, policymakers have ramped up discussions about long-term repo market solutions. In October, the Fed announced it would buy about $60 billion in Treasury bills per month to boost banks’ excess cash balances. The Fed has also committed to injecting liquidity in the repo markets as needed. To paraphrase Blue Oyster Cult, “don’t fear the (repo).”
2019 Market Strength Could Give Election-Year 2020 A Boost Regardless of how you slice it, the DJIA, S&P 500 and NASDAQ have had a great year so far. As of today’s close, NASDAQ is best up nearly 33%. On a percent basis, this would be NASDAQ’s ninth best year since 1971. Based upon total points gained, it would be number one. S&P 500 is on track for its eleventh best year since 1930, up 27.35% so far. Based upon points gained, S&P 500 is also having its best year ever. DJIA has held its own but is the laggard of this group up a little more than 21%, good for nineteenth best since 1930, second best by point (2017 currently has a narrow advantage). Such strength could cause some concern that the market could be “borrowing” from next years performance. However, that does not appear to be entirely the situation. Using the years after the big years in the above table, the following seasonal pattern charts were produced for DJIA, S&P 500 and NASDAQ. Each chart contains the seasonal pattern of “All Years,” “Election” and “Year After Top 20.” DJIA and NASDAQ historically enjoyed better gains in the years after big gains than their respective election year average performance. S&P 500 exhibits a similar pattern in the beginning of the year, but by the end of the full-year it ended with nearly the same average performance.
Optimists Take Over Thu, Dec 19, 2019 More fresh all-time highs, a winning streak ending at five days long, and the announcement of a trade agreement between the US and China in the past week have all contributed to sending bullish sentiment in AAII's weekly survey to 44.1%. That is its highest level since October of 2018 and the first time in over four weeks that bullish sentiment is above its historical average of 38.08%. This week also marked back-to-back weeks in which optimism was the predominant sentiment. The gains in bullish sentiment have come from the bearish camp as those reporting as pessimistic fell to 20.5%, the lowest reading since the February low of 20%. At this low of a level, bearish sentiment has gotten a bit extreme at more than one standard deviation below its historical average. Meanwhile, neither bullish or neutral sentiment are at similar extremes. In other words, while sentiment may be a bit overly optimistic, it could be worse. Not all of the gains in bullish sentiment came from bears. The percentage of investors reporting as neutral fell by 0.92 percentage points to 35.4%. Since that change was on the smaller side, neutral sentiment remains well within its recent range. In fact, this week marked the nineteenth consecutive week that neutral sentiment was above its historical average.
Lots of Winners in 2019 December 26, 2019 It was hard not to stumble into a winner if you owned stocks in 2019. With just four trading days left in the year, the S&P 500 Index has returned over 31%, its best yearly return since 2013. Whether you owned diversified stock portfolios of growth or value stocks, small or large cap stocks, domestic or international stocks, the chances are good that you ended up with returns of more than 25% from your stock portfolios. “This year has been truly rewarding for investors with primary risk assets (stocks) and risk-reducing diversifiers (bonds) performing well,” said LPL Chief Investment Strategist John Lynch. “This year’s stock and bond market gains more than made up for a lackluster 2018 when all major asset classes suffered losses.” Here are some of this year’s winners and losers: U.S. stocks: The S&P 500’s 2019 gain topped developed international and emerging markets, as the MSCI EAFE Index and MSCI Emerging Markets Index returned 22.1% and 18%, respectively. We would attribute U.S. stock market leadership to superior economic growth, a strong U.S. dollar, and a surging technology sector. Large cap stocks: Large and midcap stocks performed better than small caps in 2019 based on the Russell indexes. Better profit growth underpinned large cap strength as the large cap Russell 2000 Index saw profits decline this year compared with a slight profit gain for S&P 500 companies (source: FactSet).The market’s preference was clear as large caps bested small in 10 of the 11 S&P GICS sectors. Growth stocks: Growth dominated value this year, as the Russell 1000 Growth Index outpaced its value counterpart 9 out of 11 months, and continues to hold a December lead. As with large caps, the market’s preference was clear with value stocks beating growth stocks within only one of the 11 S&P sectors. Technology’s strength powered growth leadership, while value was weighed down by energy weakness. Technology stocks: Technology led all S&P sectors in 2019 with a nearly 50% total return, well ahead of communication services, the next best sector with a 32.9% return. Technology’s gains were led by the hardware group and Apple’s 80% gain, although strength was broad-based with S&P subindustry gains of 52% for semiconductors and 47% for software. Financials’ slight outperformance lifted value and provided a slight offset.
Post-Christmas Trading: Day After Bullish, NASDAQ & Russell 2000 Still Best Today is the first day of the official Santa Claus Rally (SCR). The SCR was discovered and named by Yale Hirsch in 1972 and published in our 1973 Stock Trader’s Almanac. It is defined as the last five trading days of the year and the first two trading days of the New Year. Since 1969, S&P 500 has averaged a gain of 1.3% during the seven-day stretch. Although trading so far today has been subdued with major indexes oscillating around the unchanged mark, the trading days following Christmas, right in the middle of the SCR, have a bullish track record. Since 1988, NASDAQ and Russell 2000 have enjoyed the greatest frequency of gains and average gain on the day after Christmas. NASDAQ has advanced 71% of the time with an average move of +0.37%. Small-caps have advanced 77.4% of the time with an average advance of +0.43%. DJIA and S&P 500 have slightly softer records, but bullish nonetheless. Two days after Christmas, the market remains bullish however, the frequency and magnitude of gains does ease.
Most Wonderful Day of the Year Thu, Dec 26, 2019 For the S&P 500, Santa comes a day late but not a buck short. As shown in the chart below and as we discussed in the seasonality section of the 2020 Outlook Report, the day after Christmas, December 26th, has been the day of the year that has most consistently seen the index finish higher. Of all December 26's since 1945, the S&P 500 has closed higher 78% of the time. The next best days of the year have been November 24th and August 17th which have also gained more than three-quarters of the time. That is significantly better than the average for all days of the year which is just 53.07%. In terms of the actual performance of the index, 12/26 is also one of the best days of the year on both an average and median basis. In fact, on average, the S&P 500 has closed up 0.37% on 12/26; the fourth best day of the year. As shown below, the only days of the year that have averaged better returns are 10/20, 10/28, and 11/24. October 28th is the best of these with a 0.44% gain. In regards to the median performance, the day after Christmas is still in a top spot as the fifth best day of the year, typically rising 0.33%. The only stronger days of the year are 1/14, 4/1, 7/1, and 7/9. Of these days, 1/14 has been the strongest performer with a gain of 0.42%. In the chart below, we created a composite intraday chart of the S&P 500 on December 26th since 1983 when data begins. As shown, pretty much through the entire day the index grinds higher with particular strength at the start of the day and in the final half-hour.
2019 - A Most Positive Year Tue, Dec 24, 2019 52.3%. That's the percentage of all trading days throughout the S&P 500's history since 1928 that have been up days for the market. Even though just barely more than 50% of trading days have been up days, it has translated into a price change of 18,157% for the S&P 500. Casinos are wildly profitable using a similar format. They only have to win slightly more than 50% of all bets made to make a tremendous amount of money. The beautiful thing about investing in the stock market is that you get to be the casino for once! 2019 has been a great year for the S&P 500 with a gain of more than 28%. As shown below, the index only needed to trade higher on 59.3% of days to generate a 28% gain. But positive days occurring 59.3% of the time in a trading year is actually very rare. Only five other years since 1928 have seen up days more consistently with the most recent coming in 1995 when 61.9% of all trading days were positive.
Market Not Doomed By Near Record Highs at Yearend Today’s selling on apparent yearend profit taking, putting the Santa Claus Rally (SCR) ever so slightly in the red, down 0.1% or 2.72 points on the S&P 500 since close on December 23. There are still 3 trading days left in the 7-trading-day period that began on the open on December 24 and ends with the close of trading on January 3. Normally, the S&P 500 posts an average gain of 1.3%. The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year. Our January Indicator Trifecta combines the readings from the SCR, our First Five Days “Early Warning” System and our full-month January Barometer. When all three of these indicators are in agreement it has been prudent to heed their call. Here is a table of all the years the S&P 500 made a record high in December. There are 19 of them. Following years were not great but not horrible, up 63.2% of the time (up 12, down 7) with an average gain of 6.3% and a median gain of 7.1%. We also graphed the seasonal pattern of these 19 years plotted against the average seasonal pattern of all years for the S&P 500 from 1949-2018. Years after record December highs track the typical seasonal pattern closely, but are a bit weaker with a steeper October correction and muted November-December rally.
