Monday, December 22, 2014

Santa & Janet (excerpt)

The next blog post will be on Monday, Jan. 5, 2015. We wish you all the best during the holidays and a happy and healthy New Year.

Only a few days ago, investors were starting to doubt Santa Claus. He usually gives us a yearend rally as a Christmas present. However, the S&P 500 plunged 4.9% from December 5 through December 16. That was certainly a lump of coal. But then, the S&P 500 yet again found support around its 50-day moving average without leading to a correction of 10% or more--having done so more than a dozen times since the spring of 2012. Instead, it rallied 5.0% from Wednesday through Friday last week. The S&P 500 is only 0.2% below its record high of 2075.37 on December 5.

Santa had some help from the “Fairy Godmother of the Bull Market,” Fed Chair Janet Yellen. At her press conference on Wednesday, she sprinkled some fairy dust and waved her wand, saying that the Fed will remain “patient” when considering when to raise interest rates, which could still be a “considerable time” away. Whenever she speaks publicly about the economy and monetary policy, stock prices tend to rise. She hasn’t lost her touch!

Given that the market’s overall valuation multiple is quite high, investors are always ready to jump on undervalued situations that might develop. That was evident in last week’s rally, which was led by Energy and Materials: Here’s the S&P 500 sectors’ performance derby from Wednesday through Friday: Energy (9.8%), Materials (6.3), Health Care (5.2), Information Technology (5.1), S&P 500 Composite (5.0), Financials (4.8), Industrials (3.9), Utilities (3.9), Consumer Discretionary (3.9), Telecommunication Services (3.8), and Consumer Staples (3.3). (See Table.)

On a global basis (in dollars), value hunters jumped into Russia (22.4%), Brazil (9.8), Turkey (8.4), South Africa (7.5), and Mexico (7.2) from Wednesday through Friday. Nevertheless, the US outperformed the major market indexes during this three-day rally. Here is the performance derby (in dollars): S&P 500 (5.0), EM (3.8), World (3.7), United Kingdom (2.8), Japan (2.3), and EMU (0.9). (See Table.)

Finally, investors have good reason to believe in Santa. Since 1928, December has been the best month for stocks, with an average gain of 1.5%. That matches July’s average, but December has been up 64 times and down 22 times, while July has been up 49 times and down 38 times. By the way, the January Barometer is likely to be wrong this year. The S&P 500 fell 3.6% during the first month of this year, but is up nicely ytd, especially if Santa’s rally continues through the end of the year.

Today's Morning Briefing: Melt-Up for the Holidays? (1) Santa’s little helper. (2) From lump of coal to lump of sugar. (3) Transportation stocks on a roller coaster. (4) Yellen’s fairy dust full of good cheer. (5) Yellen claims FOMC members not worried about plunging oil prices, jumping junk yields, or imploding Russian ruble. Or are they? (6) Fed-Speak: Inflationary expectations vs. inflationary compensation. (7) December often stuffs goodies in socks and stocks. (8) A bull market for all seasons. (9) Dr. Ed’s Movie Reviews: 2014. (10) See you next year. (More for subscribers.)

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