Streetwise for Sunday, December 24, 2017
It is a most wonderful time of the year, at least as far as the stock market is concerned. Yes, while a Santa Clause rally is likely, given the new tax legislation, I nonetheless never expected the Dow Jones Industrial Average to approach the 25,000 level at the pace at which it is doing so.
If you are not familiar with the term “Santa Claus rally,” it refers to a rise in stock prices during the month of December, generally over the final week of trading prior to the new year.
The rally is generally attributed to an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year.
Another reason for the rally is the usual fund managers quarterly “window dressing,” of their holdings with stocks that have performed well. The Santa Claus rally, also known as the “December Effect,” was first recorded by Yale Hirsch in his Stock Trader’s Almanac in 1972.
Looking ahead, my expectation is that the ongoing bull market will continue well into next year, resulting in an awakening of the animal spirits within both institutional and individual investors.
Corporations will likely see substantial gains in earnings given the anticipated lower corporate taxes, infrastructure spending, reduced regulations, and a repatriation of funds from abroad.
Meanwhile, if I were forced to make a prediction as we head into the New Year, I would go with a 2018 earnings growth rate for the S&P 500 of about 7 to 10 percent, with the S&P 500 index well on its way to a 2,800 number. My growth number for GDP is 2.6 percent in 2018.
Meanwhile, this is the holiday season and as critical as the nation’s macroeconomic issues are to both your future and that of your country, they are of a macro nature. On a more micro level is your personal investment strategy.
To the uninitiated Wall Street remains either a mystery or a forbidden fruit. Don’t spill your eggnog but Wall Street is an essential ingredient for your financial security. Additionally, there is no “good time,” or “bad time,” to invest. It is the methodology with which you allocate your investment resources and the quality of what you invest in that determines your level of investment success.
With a bit of work, anyone can effectively establish and maintain a profitable portfolio. And you can do it without the myriad of newsletters, books, charts and the seemingly endless series of free meal seminars that are so often hawked. To say you cannot is an excuse, not a reason.
But there is another side to investing. As you sit back, eggnog in hand, take a moment to ask yourself this question…have you have ever helped a child, a teenager, or maybe even an adult learn some investment fundamentals? It is never too early or too late to introduce someone to the benefits of investing.
I mention this idea every year not because of the avalanche of email I receive requesting that I do so, but because the discipline of investing will, of necessity, play a key role in determining a person’s future well-being.
For example, you cannot do better for a young child than with a gift of a few shares of stock. For small children, you might want to consider Disney (DIS), as it is a company they will likely understand. Unfortunately, Disney no longer issues actual share certificates. However, Disney has introduced a Collectible Shareholder Certificate that can be purchased by existing Disney shareholders.
This collectible certificate is offered by Disney at their website Disneystore.com. The certificate can be personalized and will have an embossed Disney seal. The purchase price appears to be $50.
For teenage family members who crave a more exciting life, there are companies such as Apple and Microsoft that will likely raise their level of investment enthusiasm.
If video games are more to the liking of your young guru, then companies such as Electronic Arts (EA) and Take-Two Interactive Software (TTWO) are candidates. Remember, let your budding analyst select the investments, not you.