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The Markets This Week

December 13, 2017 | Weekly Commentary

It’s the most wonderful time of the year, or so the song goes. And while those who hate the snow might disagree, for the stock market, December really can be wonderful.

For a moment there, though, it didn’t feel that way. The Standard & Poor’s 500 index started the week where it had left off the previous one—with a small decline—and just kept on dipping. By Wednesday, it had dropped four days in a row. But as Nomura Instinet technical analyst Frank Cappelleri noted, the benchmark hadn’t dropped for five or more days in a row since November 2016, and it wasn’t about to suffer one now. The market rallied for the rest of the week.

All told, the S&P 500 advanced 0.4% to 2651.50 last week, an all-time high, while the Dow Jones Industrial Average rose 97.57 points, or 0.4%, to 24,329.16, also a record. The Nasdaq Composite finished down, but only just: It declined 0.1%, to 6840.08.

If I were a betting man, I’d place my wager on more gains from here. During the past 20 years, just five Decembers have finished in negative territory, for an average loss of 1.8%, a number exacerbated by a 6% tumble in 2002. The rest of the time, December has delivered gains—often quite good ones: The average December rise has been 2.6%.

Enjoy This Market While It Lasts

The odds of a big spike in volatility are even lower. Nicholas Colas, co-founder of DataTrek Research, notes that since 1990, the CBOE Volatility Index, or VIX, has tended to peak in January, August, or October, while its troughs have occurred most often in July or December. This year, the VIX hit its low of 9.1 in November, a month that has rarely marked the bottom for the measure. The upshot: “Markets are much more likely to resemble Santa than Scrooge during the holiday season,” Colas says. For the record, the VIX closed at 9.58 on Friday.

There’s not much to scare the market between now and year end. Congress has extended the budget deadline until Dec. 22, avoiding a government shutdown, and if they can do it once, they can probably do it again. Tax reform is making progress, and there’s even a chance that a bill reaches President Donald Trump’s desk for signing by Christmas. And it’s not as if the market needs tax reform to keep chugging along. As we saw on Friday, U.S. payrolls are still growing at a healthy clip—the economy added 228,000 new jobs in November—while the unemployment rate remained at 4.1%.

MKM Partners strategist Michael Darda calls it the best-case scenario for markets. “Growth momentum remains above recovery averages, but not so fast as to create an inflation panic at the Fed,” he explains. “Enjoy it while it lasts.”

(Source: Barrons Online)

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