Investing Update: Here Comes Santa Clause
What I'm buying, selling & watching
This week made 5 straight weeks of gains for the S&P 500.
Through November the S&P 500 is up 19.45%. The Nasdaq up 36.96%.
November was the 18th biggest monthly gain since 1950 and the 4th best November ever for the S&P 500.
The Magnificent 7 were up 11% in November. Their magnificent run continues. The Mag 7 are now up 105% YTD, while the rest of the S&P 500 is up 7%. That’s coming off 2022 where the Mag 7 were down 48%.
Some notable stock gains in November.
Block +58%
Shopify +54%
Palantir +35%
CrowdStrike +34%
Uber +30%
Snowflake +29%
Salesforce +25%
Roblox +24%
AMD +23%
Tesla +20%
Nvidia +15%
Netflix +15%
Microsoft +12%
Apple +11%
Amazon +10%
Meta +9%
Alphabet +7%
Here is where the stocks that make up the Dow are at so far in 2023.
November was also the 7th best month on record for the 60/40 (60% stocks and 40% bonds) portfolio. It was up 7.3%.
This November surge all comes after a pullback in late October. The below chart of the weekly S&P 500 returns this year, shows that weeks 42 and 43 were the two worst back-to-back weeks of the year. Since we’ve had a v-shaped recovery higher from there.
If we go back to those two weeks at the end of October, here is what I had said in my Investing Updates.
October 21st - Investing Update: Q4 Liftoff Coming?
If earnings come in strong next week, especially from the four mega-cap tech stocks, the run into year-end should begin. You have fund manager with high levels of cash, Q4 historic seasonality trends in play, along with a possible catch-up trade from any managers who are lagging year-to-date. This sets up perfectly for a Q4 run right into the Santa Clause rally to end the year.
October 28th - Investing Update: Why The 200-Day Moving Average Matters
The old adage that nothing good happens below the 200-day moving average does hold true. But this is also an accumulation point where investors have to continue stepping in to buy. We’re at a historical seasonality standpoint where history tells us the market has an upside from here but you’re also afraid of catching the proverbial falling knife.
This is what the S&P 500 has done from that point.
Sometimes as much as some want to, you just can’t fight what historic data and seasonality are showing. Too many think every pullback is the start of a crash. and People love to stoke fear. Pullbacks are normal and healthy for the stock market. Don’t get spooked. Instead, learn from these because they do happen quite often.
My Favorite Long Term Chart
Tough Year to Outperform the S&P 500
With the Magnificent 7 doing so much of the heavy lifting for the S&P 500 this year, it’s not a surprise that so many stock are underperforming the S&P 500 index. To date, only 24% of S&P 500 companies are outperforming the S&P 500.
This has led to only 32% of large-cap mutual funds outperforming their benchmarks so far this year. If you aren’t heavily invested in the Magnificent 7, odds are you’re severely underperforming.
What Lower Rates Mean For Stocks
With inflation falling the focus now has turned to when we should expect the Fed to start cutting rates. In a shift, the market now expects five interest rate cuts of 25 bps (basis points) by January 2025.
If the Fed is done tightening, my first thought is that’s another catalyst higher for stocks.
Then I came across the following from Jurrien Timmer which I found very interesting. It really is a mixed reaction looking back to history.
If the Fed is done tightening, does that mean the stock market should be booming soon? Well, history offers no certainty. Here I show what happened to the S&P 500 after the Fed peaked in the past. As you can see, it’s a mixed picture, with the market falling about as often as it rallies. It comes down to whether a recession ensues, and how much of that has already been priced in.
Retail Buying Strengthening
Individual investor ETF flows remain very strong as we head into December. They’ve been aggressive buyers in this extended run higher.
JP Morgan illustrated just how much retail investors have been loading up recently. They clearly like what they see in this current stock market environment.
Here Comes Santa Clause
As we enter December, does the annual Santa Clause rally look likely to happen? I mean we just saw one of the best Novembers ever for stocks. Let’s take a look at what the road ahead to year-end may be.
All is clam with the VIX. Volatility is non-existent. These levels on the VIX are back to January 2020.
As Willie Delwiche points out, for the first time in 16 weeks there were more stocks making new 52-week highs than 52-week new lows. This further strengthens and cements just how strong of a bull market we’re seeing. If you’re not in agreement that we’re in a bull market, you need to take your blinder off.
If we look at the seasonal trend in the average S&P 500 path since 1950, we can see where it trends into year end. 2023 has tracked the historical path quite closely. If it stays on that path like it historically shows, we setup for a big run into year end.
As my friend Ryan Detrick points out in these two great charts, December is higher more often than any other month.
Then he shows how Santa usually starts to deliver gifts to investors and the Santa Clause rally starts in the later part of December.
Do you want to ignore this strong seasonality and historic trends which show a bullish outlook? You can’t ignore it and if you do want to fight it or take the other side, what’s the catalyst? Or what slows this momentum?
Minus a geopolitical or major event to shock the stock market, I don’t see anything slowing this year-end rally. It still looks to me like a rally that leads to new all-time highs.
The catch-up trade in combination with a GDP growth that is holding up. Unemployment is not budging. Inflation is falling and it was cured without a recession.
That’s a lot of good news. Let’s see if Santa is good to investors and the annual Santa Clause rally leads us to new all-time high.
The Coffee Table ☕
To honor Charlie Munger’s passing at 99 years old, I’m dedicating today’s coffee table to him. He’s the investor whom I have studied and learned from the most. He communicated his wisdom and intelligence on investing and life in such a remarkably witty way. Warren Buffet once said of his best friend and business partner of 65 years, “Charlie has the best 30-second mind in the world.” Munger will go down as the most quotable investor of all time. Here are my 5 favorite quotes of his.
“The big money is not in the buying or selling, but in the waiting.”
“I did not intent to get rich. I wanted to get independent. I just overshot.”
“Develop into a lifelong self-learner through voracious reading, cultivate curiosity and strive to become a little wiser each day.”
“Remember that reputation and integrity are your most valuable assets and can be lost in a heartbeat.”
“Life will have terrible blows, horrible blows, unfair blows, it doesn’t matter. Some people recover and others don’t.”
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