Market Outlook
Last week the major indexes closed out their second straight
weekly gain, continuing an advance that has lifted the S&P 5.9 percent in
seven sessions. For the week, the Dow rose 1.4 percent, the S&P rose 0.9
percent and the Nasdaq rose 0.9 percent. It was the ninth positive week in the
past ten for the Dow and S&P. The benchmark
index hit its 52nd record close of the year on Friday, the most since 1995 and
the fourth-best annual record ever, while the Dow rose for a seventh straight
day, its longest streak since March 2013.
The Dow Jones industrial average,
Standard & Poor's 500 index and the Russell 2000 index of small-company
stocks closed at all-time highs this past Friday. The modest pickup in stocks
came on a day of relatively light trading following the holiday break for U.S.
markets with many market participants still out for the Christmas break. The
stock market has been mostly climbing since hitting a recent low of 17,069 on
Dec. 16 on worries about plunging oil prices and a sharp drop in Russia's
currency. Since then, investors have been encouraged by signs of a
strengthening U.S. economy, which the government estimates grew in the
July-September quarter at the fastest pace in 11 years. Consumer spending and
personal incomes have been rising. The economy has been creating more jobs. As
we head into year-end, treasury bonds continue to be the top performer as this
asset class has been in a bullish trend all year basically unabated.
Investor Analysis
Wall Street's "Santa Claus" rally kept delivering
gifts a day after Christmas. As we have
been saying recently “…The December
seasonal pattern performed as advertised with the major indexes generating the
best weekly gain in months. Officially the so-called “Santa Claus Rally” is the
seven-trading day period begins on the open on December 24 and ends with the
close of trading on January 5. Normally, the S&P 500 posts an average gain
of 1.5%. The failure of stocks to rally during this time tends to precede bear
markets or times when stocks could be purchased at lower prices later in the
year….” The
markets also have history on their side. December is typically the best month
of the year for stocks, while January is the second-best.
The equity market appears to be reaching a summit as it has
crawled to new highs on relatively light volume during the end of year holiday
season. Last week, eight of the 10 sectors in the S&P 500 index rose, led
by utilities stocks. The sector is up 27.9 percent this year. Energy posted the
biggest decline, deepening its slide this year to 9 percent. As seen in the
graph below, Utilities are far and away the best performing sector over the
past month. This suggests that investors are taking a ‘risk off’ trading
approach, as utility stocks generally are considered safe, stable and maintain
value compared to other shares during market fluctuations. A standard year-end
trading strategy is to sell off underperformers and shares that have attained
their profit target. Losing trades during the year should be offset against
profitable trades to minimize the tax burden. Also, it is good strategy to have
a large cash positon going into the New Year to have the option of bidding on stocks
that have high profit potential.
By Gregory Clay
Investment Strategist
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