It’s the end of November and another month has passed us by. The seasonal correction in the stock markets never really happened this year, along with other traditional seasonal trends that failed to confirm. Then again, this past year has been one of the more unusual for markets since the Great Depression. For example, the big market rally of over 60% since March has been the largest single bull rally for its time frame since the 1930’s. Many, but not all, of our investments are back at their pre-crash 2008 highs (this is certainly true for many stocks in the TSX).
What should we expect for December stock markets? A number of unique events occur in December. Because it is the end of the year, businesses everywhere are involved in year-end tallies and analyses of their own. The holidays also mean that considerable amounts of people aren’t following usual work routines and might even be off for extended periods of time. Finally, importantly, some businesses don’t close for a heartbeat, not even on Christmas Day. These places experience an uptick in sales when dollars have no other places to go on the big days off.
So let’s look at some of these December-specific scenarios. Then you can decide for yourself what might be the best way to position your money with all things considered.
December Market Trends & Events
Company Earnings Results. As usual, look to the reporting schedules of the companies whose stocks you own or who are on your watchlist. Many investors time purchases around (either before or after) earnings reportings based on what they expect in the company’s performance. For example, RIM earnings results come out December 17. RIM has been a classic “show-me” stock for the past year or so and these earnings will show you how they’ve been holding up against the growth in the iPhone market. If earnings are good, it could be a good time to pick up RIM on the cheap since it has corrected nicely.
Seasonal Trends: Stocks Not To Buy At This Time of Year. Seasonal analysis has shown that historically, oil and agriculture stocks don’t do well right now – you need to wait until about February before they see more growth. This doesn’t mean your oil stocks will perform poorly if you already own some. It just means that a purchase you make right now might not start to rally significantly until February, if the seasonal analysts are right.
Santa Claus Rally. Some time just before Christmas through until the end of the month and the beginning of January often sees the so-called “Santa Claus Rally” – named, perhaps, due to the fact that it’s the holidays, people are in good moods, people want to spend money and are more apt and able to spend on the stock market at this time. Due to reduced holiday trading days there may be changes in volume that also help boost stock movements (eg., when the NYSE is closed but the TSX is open). Santa Claus doesn’t always pull through for the stock market, but it’s something that has happened more often than not.
Bonus season. Within the overall seasonal patterns and in the spirit of the Santa Claus rally (but more predictable) is the fact that many people also bring in work and performance bonuses at the end of the year. They have more money and might feel more confident putting more of it in the stock markets.
Black Swan Events. Finally, we can never discount the potential influence of so-called “Black Swan events,” what Nassim Nicholas Taleb has called the “highly improbable” event and the unforeseen impact it can have. For example, the recent “sheik-out” of debt deferrals in Dubai, while not necessarily “improbable” was nevertheless quite officially unforeseen and similar developments or wildcards could yet appear elsewhere.
Whatever December brings, half the battle is heading into it prepared. The end of each month is a great time to tally up not only your expenditures and income, but also your achievements, what projects and tasks are still unfinished, and what you want to accomplish within the next month. Month-to-month goal tracking is a great way to stay on track in the mid-term since month-long periods blend the short-term nicely with the long-term.
Is there anything in particular you do with your money during December? Do you have special year-end accounting tips or tricks you’d like to share? What are you watching out for? Let us know!
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