equities

Small Caps Getting Coal From Santa?

As I mentioned previously, end of the year – aka the “Santa Claus Rally” – is the best time of year to be invested in the market. The question is… has the market figured that out already?

Here are the returns for the IWM ETF (Russell 2000) from 3 trading days before Christmas to the end of the year. I have the Maximum return as well as the holding period return from 2000 to 2019.

You can see massive returns during this period. The annualized holding period return is ****31%****!

You can see this has almost disappeared over the last few years. The average return the last 5 years is negative. The average return over the last 10 years is 0.4% or 13% annualized – worse than the 14% the market has averaged over this period.

The bottom line is it appears the market has become more efficient about the Santa Claus Rally. i.e. people anticipated it so they buy stocks beforehand, pushing up the prices and therefore lowering returns.

By Christopher Schwarz, ago

‘Tis the Season to be Overweight (Equities)

While the average and median returns of the stock market are fairly equal across the months of the year, your chances of winning are not.

Here is a figure that calculates the probability the stock market goes up in each month. This is from 1962 to 2019. I did two equal subperiods as well to show this is not a random data error. Note because the stock market has been more bullish recently this is the EXCESSS probability of going up.

You can clearly see the pattern: Stocks are most likely to increase in April and Nov/Dec.

Why? In April everyone is making IRA contributions before the Tax deadline. In Nov and Dec, everyone is trying to make 401k contributions (and related retirement investments) before the December 31st deadline.

Thus, if you like to play the horses so to speak, this is a good time to get overweight the market.

By Christopher Schwarz, ago