Weekend Reading: Last Chance For Santa Claus

by Lance Roberts

So far, the month of December has sucked.

From Powell to Gundlach, to Trump, and a falling oil prices, there hasn’t been much “holiday cheer…”

However, with the market very oversold, there is still hope that “Santa Claus” could soon appear.

If we take a look back at history, going back to 1957, we find that only a small percentage of the time does the market decline for more than 4-weeks in a row without a reflexive bounce.

The red vertical bars are every 4- or more consecutive negative return weeks as compared to the S&P 500. As you will note in the statistics, out of the total period of time analyzed 57% of weeks are positive versus 43% negative. Notice that “clusters” of 4- or more negative weeks occur around market peaks and bear markets as opposed to bullish market trending periods. The last cluster of periods was during the 2015-2016 correction.

Of the total number of negative weeks, 33% were negative 4- or more weeks consecutively. However, those 4- or more negative weeks only accounted for a 14% of the total periods analyzed.

However, what about the month of December only. The chart below is the same as the chart above but looks at ONLY the months of December.

What we find is that of all the months of December going back to 1957, there have only been 9-December months that posted 4-consecutive negative weeks.

While we are currently 3-weeks into a very brutal month of December, there is still hope of an oversold bounce to “sell” into heading into the new year. There is a case to be made for this as mutual, pension, and hedge funds “dress” their portfolios for year-end reporting. However, January could well see a resumption of pressure as mangers can sell positions with still large gains and defer taxes into 2020.

Given the collapse in oil prices, the sharp rotation into bonds and rising volatility, it is highly likely that any rally over the course of the post-Christmas week should not be taken for granted.

It could well be a “gift” for investors heading into 2019.

Just something to think about as you catch up on your weekend reading list.

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Economy & Fed

• How The Fed’s Stockpiling Of Ammunition Could Blow Up by Caroline Baum via MarketWatch
• Another Warning Of A 2019 Recession by Raul Elizalde via Forbes
• The Market Won’t Like Powell Nuanced Policy by Neil Irwin via NYT
• So, NOW You Want Easier Money by Scott Sumner via The Money Illusion
• The Fed Is Panicking by Nomi Prins via The Daily Reckoning
• Trump Preps His Scapegoat For The Recession: The Fed by Evan Kraft via The Hill
• White House vs. Fed? White House Wins by Steven Forbes via Forbes
• How To Make A Trade War Even Worse by Jennifer Hillman via NYT
• 86% Of Government Spending Is On Autopilot by IBD

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Research / Interesting Reads