By LewisJ. Walker, CFP®
In a recent column we cautioned against using the calendar as a predictor of stock market performance. We cited skepticism about market performance in September and October, two months with bad karma based on some notable past setbacks.
But this year there was no "September massacre" and the S&P 500 Index (SPX) rose 8.3% in October. There is nothing like a bit of stock market momentum midst headlines about terrorism, refugee pressures, and other global worries, to spread a modicum of cheer as holiday decorations go up, trees are illuminated, sales start early, and stock market watchers speculate on the odds of a Santa Claus rally before year end.
Novelist and journalist Charles (Chuck) Palahniuk, author of "Fight Club," asked, "What is the real purpose behind the Tooth Fairy, the Easter Bunny, and Santa Claus? They seem like greater steps toward faith and imagination, each with a payoff. Like cognitive training exercises." When it comes to "future casting," faith and imagination are key elements, but more important is the use of cognitive abilities in pondering "what ifs?"
A dear friend and retired financial planner once asked, "When is the best time to invest in the stock market?" The answer: Whenever you have the money! When should you leave money in the stock market, recognizing that time is more important than timing? You should have ample cash flow from working, or adequate cash and low volatile reserves if retired, to run your life for some time, letting stock markets do what they do, fluctuate, while providing dividends and growth potential.
Shirley Temple opined, "I stopped believing in Santa Claus when I was six. Mother took me to see him in a department store and he asked for my autograph." Skepticism is useful in evaluating any theory, including market forecasts. Nevertheless, data points to the possibility of a Santa Claus rally capping off this year of "climbing a wall of worry."
Sue Hang, MarketWatch, 11/20/2015, quoted Ryan Detrick, a Cincinnati-based market strategist, who noted, "November 20 is the typical date on which the benchmark (index) bottoms before it revs up for its vaunted Santa Claus Rally." On Friday, November 20, the Dow rose by 91 points, up 0.51%, the S&P 500 closed up 0.38%, and the NASDAQ jumped 0.62%.
Another signpost on the road to holiday optimism, said portfolio manager Detrick, is the fact that "if the market rose more than 5% in October (as it did), November has always closed on a positive note." Considering December, Detrick added, "Indeed, over the past 12 years, the S&P 500 has uniformly stayed positive for the final 30 trading days of the year."
Going back to 1950, December has produced a mean average gain of 2.36%. A chart in the MarketWatch piece detailing December S&P 500 returns from 2003 through 2014 showed no negative performance in any year. The highest gain was 7.42% in 2003, the lowest, 0.35% in 2014. The average gain was 2.90%. No matter what you believe about Santa Claus or the Tooth Fairy, don't look a Gift Horse in the mouth!
As horses mature, they grow more teeth and existing teeth change shape. Supposedly, an expert can look a horse in the mouth to gauge its age and value. The proverb suggests, when receiving a gift, be grateful. Don't imply you wished for more by assessing its value. That's a good insight into dealing with life, and with any investment that delivers positive gains over time.
A Santa Claus rally? If we get it, I'll take it, raising a glass of bubbly to 2016, an election year. According to aboutmoney.com, of the last 21 election years since 1928, there have been only three years when the S&P 500 index had a negative return. Gift horse or not, the odds are with us. Cheers!
Lewis Walker is President of Walker Capital Management, LLC. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC.
Notable Quote: Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it. -Richard Lamm, Governor of Colorado 1975-1987