Christmas is a wonderful season, in more ways than one. Since our focus is on investing, I’ll stick with the markets. Here’s the good news: The period around Christmas and the New Year has historically been one of the market’s best.
Jay Kaeppel, author of Seasonal Stock Market Trends, examined the last seven trading days of each year dating back to 1933. He found that the Dow Jones Industrial Average rose 78% of the time. If you look at 10-year periods and were only invested during the last seven days, then the market rose 100% of the time. Longer periods increased the probability of a gain. Sound familiar? It should.
Of course that doesn’t ensure stocks will rise. Stocks have rallied sharply heading toward this period so that may delay the rally. Also, many market analysts now know that this is a seasonally strong period so its effectiveness has recently tapered.
This December investors are buying almost every day for the same reason, i.e., optimism that economic growth will accelerate as people are vaccinated and we return to the pre-COVID days of faster growth and better profits. The Fed once again raised its forecast for this year and next. They now see 4.2% GDP growth in 2021. That would be very good news.
The only question is how much of next year’s good economic news is already baked in the cake. Quite a bit, I’m sure. But even so, I can’t help but come back to the fact that money has to go somewhere and the choices are few — stocks, income vehicles, gold, Treasurys, cash, real estate. Eliminate all but stocks and at times bonds and income vehicles such as preferreds. Stocks are still the place to be.
Expect some routine profit-taking from time to time, especially in the big-cap tech stocks that have extraordinary valuations. The tech-heavy Nasdaq is up 42% this year. That has only happened five times since 1975. And that comes after rising 35% last year. Trust me, the Nasdaq’s 2021 return will be much lower.
As we enter the bullish seasonal period the stock market has a clear message: by the end of 2021 the economy will see its fastest growth in years and interest rates will remain low for years to come. Last week Fed chief Powell reiterated his plan to buy bonds and mortgages well into the future, at least until inflation rises above 2% and the expected GDP growth spurt appears. Investors are counting on it.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.