Nov. 25--Did Santa sneak down your chimney earlier in November and drop so much candy into your investment stocking that he won't show up again between now and Christmas?
He might have.
If so, this could be a year without a "Santa Claus rally," when Christmas cheer means investors are treated to an average stock market gain of 1.36 percent in December.
"We've already had our Santa Claus rally," said Russ Koesterich, chief investment strategist for BlackRock.
Still, that doesn't mean Santa is done.
While gains for the rest of the year may be modest, Koesterich says the market will continue to be propelled by the season, low interest rates and excitement over Europe, China and Japan stimulating their economies.
Since Oct. 15, the Standard Poor's 500 index has had a shocking move -- an 11 percent gain after a short 7.4 percent dip in late September and early October. S 500 analyst Howard Silverblatt notes that the index, which investors use as a representation for the full stock market, has hit 11 new highs in November. There hasn't been such a strong November since 1961, when the market hit 13 new highs in a month, he notes.
Sometimes after such a powerful upturn, stocks take a breather. Yet investors have come to expect Santa Claus rallies in December simply because they've been so predictable.
December rallies occur 70 percent of the time, according to research dating to 1900 by S's Sam Stovall. Since 1990, rallies have enriched investors in 83 percent of Decembers.
Often the Thanksgiving period is relatively calm and the surge comes around Christmas and into year-end.
It's not just the magic of Christmas that's the driver.
Stovall says rallies come as investors, like many people, become infected with the optimism associated with the new year. In addition, at the end of the year and early the next year, people invest year-end bonuses and money flows into pension plans and IRAs.
Also, this is the time of year when fund managers start to worry if their funds are falling way behind the stock market. They try to catch up so clients don't see disappointing year-end statements and bolt.
This year the motivation to catch up should be especially strong.
Hedge funds, which charge investors a pretty penny to presumably get the expertise of a brilliant manager, have been losers. The HFRX Global Hedge Fund Index is showing a slight loss, which is a dismal showing when the S 500 has gained about 12 percent for the year and the Dow Jones industrial average has climbed 7.5 percent.
Energy and stock declines hampered hedge fund returns this quarter, said Goldman Sachs analyst Ben Snider in a report. Funds lowered their energy exposure but remained heavily exposed as West Texas Intermediate crude oil prices fell 25 percent this year and hit a four-year low Tuesday in advance of an OPEC meeting this week. Brent crude has fallen 30 percent as supplies of oil remain strong and demand has slowed amid a weakening global economy.
"If you weren't in the right industry groups this year, there's a good chance you are underperforming," said Bespoke Investment Group in a report this week.
Although energy and autos were the only industry groups among 24 to have declines this year, only 10 groups outperformed the S 500.
Among the winners: technology hardware and semiconductors, transportation, drugs and biotechnology, real estate, health care equipment and services, utilities, and food beverages and tobacco.
Bespoke found, as it researched stocks back to 1990, that investors and traders tend to gravitate toward winners during this season instead of trying to find a bargain among the losers.
Retail was under water for the year until recently, but typically it's strong around Thanksgiving and flattens out toward the end of the year, Bespoke said.
Anticipating a strong holiday shopping season, S's index of retail stocks has climbed 14 percent since its low in October. Tiffany stock enjoyed a lift Tuesday after it reported an 11 percent increase in same-store sales in the Americas. The company noted weakness in Asia and especially in Japan but noted strength in the U.S.
Believers in a rally into the end of this year point to increasing strength in the U.S. economy, including stronger October retail sales, an increase in consumer spending, a decrease in oil prices helping consumers and some businesses, and the report Tuesday that third-quarter gross domestic product grew 3.9 percent.
Yet, with stocks pricey after three-straight years of double-digit gains, investors could become more cautious if they see signs of European and Asian weakness disrupting U.S. exports significantly, or learn that U.S. consumers are squeamish about holiday shopping.
gmarksjarvis@tribune.com
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