Ho Ho Ho! Santa Bernanke Arrived
Greetings from usually cold and snowy, but recently tropical and wet Vermont! After three days of skiing in the rain, Old Man Winter came back and cut the temps by 70%! From short sleeve shirts and a light jacket, I am gearing up in full winter weather garb for wind chills around 0 today on top.
Ben Bernanke did it! The master. The maestro. He saw the downside of announcing a taper to their $85B a month in asset purchases, but felt strongly it needed to be done. As much as I really like and admire him, I respectfully disagree. Anyway, the man who has threaded needle after needle after needle threaded his final one last week and it was picture perfect, another beaut!
With enough hawks on the committee to push for the taper, Bernanke gave them what they wanted but also prevented the very nasty negative market reaction so many feared by pushing off the raising of rates farther into the future. It was genius and after a few minutes, the markets celebrated in a huge way with the celebration still ongoing. The Fed’s move also solidified a trend that I and many others have spoken about for some time, the strength of statement day in the stock market. With some qualifiers, it’s been like shooting fish in a barrel, the proverbial layup in trading.
Fed statement day last week also kicked off the traditional Santa Claus Rally. I have done an incredible amount of research in my 25 years in the business, but as I think about it, none more in the seasonal department than December and early January trends. And I know I am far from alone. To date, the stock market has pretty much followed historical patterns that included a mild early December decline to a mid December low from which the year-end rally launches to the most seasonally positive time of the year.
Bernanke may be given the credit (or not), but stocks are in the midst of the Santa Claus Rally that is supposed to last into the New Year. That doesn’t mean that every single day will be up! Depending on when you begin your study and which instrument you use, the positive seasonality can start anywhere from December 17 to the 24 and last until December 30 or through the first week of the New Year. On the flip side, as we recently saw in 2007 is that the famous adage usually works; If Santa Claus should fail to call, bears may come to Broad and Wall, meaning that if the traditional year-end rally does not occur, it is a warning sign to look closely at the market for winds of change.