Santa came, rather late than never
There is a long-observed trend in the stock market which, as the 2019 Stock Trader’s Almanac notes, old St. Nick “...tends to come to Wall Street nearly every year, bringing a short, sweet, respectable rally within the last five days of the year and the first two in January.” This rally has yielded positive returns about 75% of the time since 1969. In 2018, although a little late, Santa brought the best performing day in history!
Given the immense pressure on stock markets around the world since the start of October, investors were begging Santa to show up in the final few weeks of the year with a stocking full of gains. Understanding that momentum works in both directions (both up and down), we were not so sure that Santa will save the day this year.
A question that we have gotten all year is: “if the US economy is doing so well, why isn’t the stock market?”. First, it is important to recognize that, although closely linked, the economy and the stock market are 2 different markets that tend to move in response to different variables. The initial co-existence has continued on divert more recently.
In looking at the stock market, we need to be aware that the stock market is a leading indicator, meaning that it often shows where the economy is headed, rather than where it has been. The economy, on the other hand is often measured by lagging indicators that tend to report what happened in the past. Herein lies the main disconnect between the stock market and the economy on main street.
While we do not necessarily believe that a recession and severe economic contraction is imminent, we are growing increasingly concerned about the stock market and its inability to regain its footing after a tough few months. Of course, as a leading indicator, we need to be aware that the stock market may also be giving us some hints with regards to where the economy itself is headed.
The Best Single Day Close Ever!
There are a few very important catalysts that could help stabilize this market:
Reassuring words and actions from the Fed, showing that they might be willing to slow down their rate of interest rate hikes in 2019
Continued positive developments relative to US/China trade talks
Solid corporate earnings reported in January 2019 for 2018’s 4th quarter
Sometimes we shouldn't listen to all the neigh Sayers!
The best advice is to do your homework and know your investments, speak to your financial advisers for clarity and guidance! Oh yes, Thank you Santa!