All everyone cares about right now is the Fed…
…what’s the interest rate (it’s the same as it was last month)…
…is inflation under control (no it’s not)…
It’s the same old song and dance that amounts to a whole lot of nothing.
Fed Fund Futures predicted a 97% chance the Fed held interest rates steady.
Savvier financial analysts might try and parse the Fed’s words, hoping for a glimpse into the future.
However, we’ve got something better.
Our team gathered incredible insights into the seasonal trends that dominate the holiday season.
With everyone focused on the Fed, we believe these patterns could be more powerful than ever before.
And here’s how they work.
Did you know that November is one of the most bullish months for the stock market?
We looked at over 20 years of data across various indices.
Our test was simple: Buy the open of the first trading day of the month. Sell the close of the last trading day of the month.
Here were the results:
Both the S&P 500 and the Russell 2000 finished higher than they started 80% of the time.
The Dow and Nasdaq 100 had slightly lower percentages.
Nonetheless, when you see the same trend across multiple indices, there’s a good chance it’s valid.
That’s why June is typically a terrible month to invest, at least relative to the other indices.
We also look at the average profit to ensure we don’t have a high winning percentage that gets wrecked by a few huge losses, which we saw in March.
However, we don’t want to just take the data at face value.
We also tested gold and Treasuries, two assets that typically move in the opposite direction of equities.
The results were as follows:
While Treasuries held up well in November, gold’s performance was absolutely awful.
All of this aligns with the typical themes we hear about during the bullish holiday season, including the fabled Santa Clause rally.
We, in fact, ran various tests on the Santa Claus rally and found very little evidence it exists at all.
However, we did find some other useful statistical data.
For example, there’s a general bullish tendency leading into Thanksgiving.
If you bought the open of Friday’s market before Thanksgiving and sold the close of the Wednesday the day before Thanksgiving, you’d win that bet about two-thirds of the time and make some nice cash along the way.
Keeping the Context in Mind
Seasonal trends are powerful. However, they work on averages.
Exceptional events can dramatically change the outcomes.
For example, the time between Christmas and New Year’s is rather bearish.
But 2018 threw a curve ball into the mix.
The tables below show what would happen if you bought the open of the day after Christmas and sold on New Year’s Eve. However, one table includes data from 2018 and one does not:
Note: Profit Factor (PF) = Total Profits/Total Losses
PF = 1 you broke even, PF >1 you made money, PF<1 you lost money.
In 2018, we experienced a “taper tantrum” that sent stocks spiraling and then bouncing back.
The moves were so powerful that they skewed the data to make it look like this was a profitable strategy.
However, once we removed the 2018 data, the profitability tanked.
That’s why you always want to consider seasonality in context.
Naturally, you’re probably wondering: Does the current environment warrant such caution?
We don’t believe so.
2018’s moves were exceptionally violent because the Fed caught the market off guard and then quickly reversed its decision.
Despite a cruddy market environment, the Fed isn’t likely to provide any surprises between now and the end of the year.
But if it does, just know it can and will override seasonality.
Preparing for the Possibilities
Knowing what we do, how can we take advantage of these seasonal trends?
We can reposition ourselves into the asset classes that typically perform the best through the end of the year.
In this case, that would be Consumer Discretionary names, Industrials and Materials.
The worst-performing sectors are Energy, Utilities and Real Estate.
Given the current landscape, this makes a lot of sense.
Energy prices are way ahead of themselves and likely to pull back, taking the sector with it.
Consumer Discretionary names have been hit hard. Yet, consumer spending remains robust. That likely means there’s hidden value beyond the headlines.
However, this just scratches the surface of what’s possible.
To really get that Clark Griswold pool-sized Christmas bonus, you’ll need a well-structured selection of stocks, or the Perfect Portfolio.
Lucky for you, it’s possible to have your cake and eat Santa’s cookies too.
Jim Woods put together what he calls his Perfect Portfolio: three stocks that outperformed the market through good times and bad well over tenfold.
But that’s just the start.
No joke, for less than the price of a cup of coffee per day, you can get Jim’s portfolio AND his premium Intelligence Report.