• December 7, 2022

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Even in Bear Markets – Holiday Season is Usually Profitable

So far, this year has been a “poster child” for investors who follow the stock market’s seasonal trends.

The 2022 Bear Market in a Nutshell:

· “As January Goes, so Goes the Year” – DJIA started the year down 3.3%

· “Sell in May and Go Away” – DJIA declined 13% through the Summer

· “September Fallout” – Worst month of the year with DJIA dropping 9%

· “Santa Claus Rally” – ???

With a backdrop of rising interest rates due to high inflation, it has been a textbook bear market and one of the worst investment years since the 1970’s.

Now, for the good news! If history is a reliable guide the worst might be over, and some holiday cheer from Wall Street could come soon.

Since 1970, the Dow Jones Industrial Average, S&P 500 Index and NASDAQ Composite post strong results in the final quarter of the year most of the time. In fact, November & December post positive results 65% & 74% of the time. This phenomenon is better known as, “The Santa Claus Rally”

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What is even more encouraging is when you focus on monthly performance during the eighteen negative investment years since the Apollo 11 moon landing, the same results occur. Even with its infamous reputation from the 1929 & 1987 crashes, October has positive results 50% of the time in bear market years.

Bottom-line: the last 3 months of the year are usually profitable during bear markets!

Selectively Buy the Dip

With earnings season wrapping up within a few weeks, stock investors should consider taking advantage of this opportunity and add positions in their cash heavy portfolios. Since commodity stocks traditionally perform well during lackluster periods of high inflation, investors should consider some of the “Blue Chip” names from the 1970’s like Exxon Mobil (XOM) or Archer Daniels Midland
ADM
(ADM).

I have been a portfolio manager for over 30 years, and I incorporate the seasonality of stock market trends into my decision making. However, there is no “magic wand” to stock market forecasting, and veteran market strategists use a variety of statistics to peak around the corner in search for the end of this bear market.

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