What is a Santa Claus rally? A Santa Claus rally describes sustained increases in the stock market that occur in the last week of December through the first two trading days in January. Source: Investopedia. “Since 1969, the Santa Claus rally has yielded positive returns in 35 of the past 48 holiday seasons – the last five trading days of the year and the first two trading days after New Year’s. “ source: Stock Trading Almanac. However, the stock market has declined during this period in 2 of the last 3 years.
My sense is we will not get a Santa Claus rally in 2018. There are just too many headwinds – US/China trade tariffs; the Federal Reserve raising interest rates; geo-political risks such as UK leaving the European Union.
November saw some recovery from the October selloff and ended the month on a positive note. December started positively on the heels of a 90 day truce on tariffs between the US and China. However, today President Trump called himself a “Tariff Man” throwing uncertainty back into the tariff issue and sending the market into another selloff.
While I expect the financial markets to remain volatile due to the headwinds described above, I see no signs that we are headed toward a recession. Recessions tend to start 12 – 20 months after the Leading Economic Index peaks. As the chart below shows, the LEI continues to be rising.
However, the pace of increase in the LEI has slowed recently. “The US LEI increased slightly in October, and the pace of improvement slowed for the first time since May,” said Ataman Ozyildirim, Director of Economic Research and Global Research Chair at The Conference Board. “The index still points to robust economic growth in early 2019, but the rapid pace of growth may already have peaked. While near term economic growth should remain strong, longer term growth is likely to moderate to about 2.5 percent by mid to late 2019.”
Given this, I am in the process of shifting to a slightly more defensive posture in portfolios. If I am wrong about Santa Claus, it will be because I am not bullish enough, but I feel the current environment requires more caution for the time being.
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December Calendar of Events (comments and additions for future months are always welcome)
- December is Universal Human Rights Day. Let’s pray that all people, regardless of race, religion, gender, or nationality can learn to treat others as we all wish to be treated.
December 2 – 10th Happy Hanukkah – May it also be a festival of love, happiness, success, and health in your world now and always.
December 10th Human Rights Day – I have cherished the ideal of a democratic and free society… it is an ideal for which I am prepared to die. – Nelson Mandela
December 15th Healthcare open enrollment – for coverage starting Jan 1, 2017 – ENDS!
December 19th Christian’s birthday
December 21st Winter Solstice – The shortest day of the year and the start of winter
December 25th Merry Christmas – have a wonderful holiday. Let’s all remember the true significance of this day – the birth of Christ.
Sources: Investopedia, Advisor Perspectives
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