Momentum is a powerful force. Bet against it at your peril. John Maynard Keynes was believed to have said “…the market can remain irrational longer than you can remain solvent”. Sound advice. Those expecting (or worse betting) the market would reverse to start 2024 are probably questioning their decision. It’s been one record close after another. Higher highs beget higher highs.
Santa’s Rotten Apple
What happened to the Santa Clause Rally? Bahhh humbug! For those less familiar, a Santa Claus Rally involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the following January. Over these 7 trading days in question, stock prices have historically risen 76% of the time (to the tune of ~1.3%) – far more than the average performance over a 7-day period. But this year the market received a fat lump of coal. Or more accurately – perhaps a “bad apple”. Some feel that’s potentially a bad omen for the year ahead… giving rise to the popular Wall St. maxim “… if Santa Claus should fail to call, bears may come to Broad and Wall”….
Did We Just Pull 2024’s Gains Forward?
Stocks were already partying into the Fed meeting (up ~12% over 6 weeks) – however when Powell provided his December update on monetary policy – he simply turned up the music. Risk was on. So here’s my question – with stocks up an incredible 15% in just 7 weeks – how much of next year’s potential gains have been pulled forward? Is it riskier now to buy stocks than it was a few weeks ago? To be clear, stocks are likely to add to their gains before the year is done – however we are now trading close to 20x next years earnings. That’s not a bargain.
Bifurcated Markets Usually End the Same Way
If you’re long the market – it was another rough week. My portfolio was no exception. My largest position (Google) was smoked – losing around 10%. The Index is now only up 7.24% for the year…. a long way from almost 20% higher in June. The next hurdle for the market comes next week – when we get payrolls. A soft print might give the market hope the Fed is almost done. However, if it comes in hot, the Fed may have no other choice but to hike again in December… given the uncomfortably high Core PCE last week.
For a full list of posts from 2017…