Market Outlook
December is the number one S&P 500 month and second best
for DJIA since 1950, averaging gains of 1.7% on each index. It’s also the top
Russell 1000 and Russell 2000 (1979) month and second best for NASDAQ (1971).
Rarely does the market fall precipitously in December. In midterm years,
December’s rankings slip modestly, but average gains remain inline. The
“January Effect” of small-cap outperformance starts early in mid-December. Wall
Street’s only “Free Lunch” of distressed small- and micro-cap stocks making new
52-week lows on December Triple-Witching Friday will be served before the
opening bell on December 22. Santa’s Rally begins on Wednesday December 24 and
lasts until the second trading day of the New Year. S&P has averaged gains
of 1.5% since 1969. In years when Santa Claus did not come to Wall Street, bear
markets or sizable corrections have often materialized in the coming year.
U.S. stocks ended a holiday-shortened session mostly flat last
Friday as a massive decline in the energy sector offset strength in consumer
names. For the week, the Dow rose 0.1 percent, the S&P rose 0.2 percent and
the Nasdaq rose 1.7 percent. It was the sixth straight weekly gain for all
three. For the month of November, the Dow was up 2.5 percent, the S&P was
up 2.5 percent and the Nasdaq up 3.5 percent.
Investor Analysis
According to Lipper Analytical Service, 2014 has shaped up
to be the worst year in modern history for active stockpicking fund managers,
with 85% of them failing to beat their benchmarks! This is astounding. Imagine
if only 15% of the autos sold by car companies performed the way there were
supposed to or what if airlines only got 15% of their flights to the
destination on time. This is disastrous underperformance for the investment
management industry. The moral of the story is you probably can do better
taking time to do your own research and picking stocks yourself. You should be
able to do better than most investment managers did last year by following a
strategy of investing in top performing stocks from each of the leading sectors
and selling shares in lagging sectors like energy.
By Gregory Clay
Investment Strategist
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