Bad Santa

December 5, 2018

As certain as Turkey on Thanksgiving, ugly Christmas sweaters, and carolers at the door, we have come to expect the “Santa Rally.” Unfortunately, this December is starting off to be the “Bad Santa” decidedly not a rally, rally.

Maybe because expectations are so high for a December rally investors seem more panicked then usual from the months rough start. For a little perspective let’s take a look at what history says about our rally prospects.

Since “Bad Santa” first appeared on movie screens in 2003, December has been the 3rd best month of the year, with an average monthly return of 1.47%. But Mr. Market Bad Santa has appeared more often than movie Bad Santa with 4 negative Decembers vs. 3 Bad Santa movies. Since 1950 Decembers have been positive 75% of the time. Good odds, but not something to bet on…or base investment decisions on. 

Let’s take a closer look at this year’s market as well, to see where we really are in terms of a correction. Below is a year-to-date graph of SPY, the iShares S&P 500 Index ETF.

Each bar represents a days price change for SPY, red bars are down days, green bars up days. The blue middle line is added as a reference for the markets starting level in January to its close on December 4th. Important take-a-ways: The market is just hanging on to a positive return for the year, from the peak in October through the 4th the market decline is less than 10%, and most of the post-October decline has been from just two really nasty down days. From mid-October to the end, while volatile, the market has moved sideways. Sideways means uncertainty, and uncertainty means volatility.

What does this mean? As I have repeated nearly every post, the market is dependent on corporate earnings, and right now there is a great deal of uncertainty about where corporate earnings growth will be in 2019. There are just too many moving variables to do real number calculations. Overall, economic statistics are still coming in very strong. But headwinds and uncertainty are growing; tariffs, higher interest rates, new congress, and a growing probability of a european recession. Will the second year of lower tax rates keep the U S consumer buying while the world around us is slowing? 

What’s an investor to do?  The market is going to be volatile until we get some history behind us of how earnings will play out for 2019. Maybe a January rally if  4th quarter earnings strongly beat expectations. But odds are the market will be very news driven, gyrate a lot, but keep a sideways trend.

Our advice? Be diligent, be patient, but most of all relax and enjoy a wonderful holiday season with loved ones and friends. It’s still early in the month, good Santa still has a good chance of showing up!

Mr. DeShurko is a registered representative of Ceros Financial Services, Inc, (Member FINRA/SIPC). Ceros is not affiliated with 401 Advisor, LLC or Fund Trader Pro. The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.


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