With greater than 5% gain in the main US indexes in both October and November this year, December is expected to start slow and then gain steam as the Santa Clause Rally comes to town.
October is known as the ‘bear killer’ month. In US mid-term election years it can provide especially strong returns. With the economy faltering and inflation still too hot, investors are skeptical. We wait for confirmed bullish signals as markets set up for a bounce.
The US presidential election cycle last four years and shows definitive patterns historical that point to weakness in the first half of the second year. This leads to a run up in Q4 following thru to Q1 of year 3. This is known as the ‘sweet spot’ for investors.
For about 6 weeks the market has moved higher. This momentum takes many indicators to extremely overbought levels. This typically leads to weak price action going forward.
November started out very strong, but around the middle of the month small cap stocks began to struggle. Large cap stocks (especially the favored technology and consumer discretionary stocks) went on to make all time highs later in the month. However, during the generally bullish period of the year – around Thanksgiving (Thursday, November 25th) -the large cap leaders also started to sell off.
November leads into the best months of the year. Trading around Thanksgiving is a bit tricky.
Closer look at Emerging Markets after last years stellar returns. Barrons Big Money looks bullish from the outside only. SaaS is overvalued still.. Seasonality shifts towards small caps. Financial Vulnerability is a hot topic after COVID.
Seasonality has slightly moved forward this month. Will we see more weakness ahead, as this month’s gains are above average already with last week’s move from the US stimulus announcement?
Halloween typically offers investors a treat. A six day trading period starting next week is usually very bullish.
October can invoke fear into investors as it is usually a weak month. However, October often marks the lows for the year. Stay diligent!