{"id":1441004,"date":"2023-11-28T15:45:00","date_gmt":"2023-11-28T20:45:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1441004"},"modified":"2023-11-28T15:45:00","modified_gmt":"2023-11-28T20:45:00","slug":"stock-market-correction-coming-before-the-santa-claus-rally","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/stock-market-correction-coming-before-the-santa-claus-rally\/1441004\/","title":{"rendered":"Stock Market Correction Coming Before The Santa Claus Rally"},"content":{"rendered":"

Stock Market Correction Coming Before The Santa Claus Rally<\/span><\/p>\n

\n

Authored by Lance Roberts via RealInvestmentAdvice.com,<\/em><\/a><\/p>\n

Is a stock market correction coming before the Santa Claus rally at the end of the year?<\/p>\n

It is a fascinating turn in sentiment, given that investors were convinced of the bear market\u2019s return just a month ago. Now, investors are\u00a0\u201cmaking their list and checking it twice.\u201d<\/em>\u00a0Given the 10% advance over the past month, it isn\u2019t surprising, as hope rises that the Fed will return to more accommodative policies next year.\u00a0Earnings remain very\u00a0\u201cnice,\u201d<\/em>\u00a0and the market views\u00a0the economic risks as primarily priced in.<\/p>\n

There are indeed\u00a0\u201cnaughty\u201d<\/em>\u00a0economic indicators, but the market seems convinced it will all be transient. Furthermore, companies seem to be able to pass costs along to consumers, at least for now. The hopes are high that profit margins will remain strong and earnings will eventually catch up to valuations.<\/p>\n

Investors\u2019\u00a0\u201cwish lists\u201d<\/em>\u00a0are hung by the chimney with care, hopeful the\u00a0\u201cSanta Claus rally\u201d<\/em>\u00a0will soon be there.<\/strong>\u00a0While they remain\u00a0\u201csnug in their beds, the historical data dances in the heads.<\/em>\u201d The chart below from\u00a0EquityClock.com<\/em>\u00a0shows the annual S&P 500 index\u00a0\u201cseasonality.\u201d<\/em>\u00a0<\/p>\n

<\/a><\/p>\n

There is little to worry about, and a significant stock market correction is unlikely.<\/p>\n

However, notice that dip at the beginning of December.<\/p>\n

Mutual Fund Distributions Come First<\/strong><\/h2>\n

Before\u00a0\u201cSanta Claus\u201d<\/em>\u00a0makes his anticipated visit to\u00a0\u201cBroad and Wall,\u201d<\/em>\u00a0mutual funds must distribute their capital gain, dividends, and interest income for the year. These distributions start in late November, but a large number of distributions occur in the first two weeks of December. Again, notice that dip in the seasonality chart above.<\/p>\n

Those distributions are why I get many emails from individuals every year confused by a sharp decline in their mutual funds. To wit:<\/p>\n

\u201cLance, I don\u2019t understand what happened to my fund. Yesterday, the fund was trading at $10.54 per share, and today it is at $9.78. There is no news to account for decline.<\/em>\u201c<\/p>\n

There is nothing wrong with the mutual fund.<\/strong>\u00a0They made their annual distribution. In this case, it was capital gains and dividend income.<\/p>\n

When the distribution occurs, the fund price is immediately impacted. However, you will receive additional fund shares or a cash deposit in a day or so. That difference depends on how you have elected to take your distributions. Your portfolio value will decline by the distribution amount on that date. But your value will return to normal when that distribution is received and credited.<\/p>\n

There is no need to panic.<\/strong><\/p>\n

However, there is potentially a negative impact on the market as those distributions are made. Such is particularly true when volumes are light and markets are overbought. As shown, the volume has declined during the advance from the summer stock market correction. Furthermore, the market is now overbought and deviated from the 50-DMA.<\/p>\n

<\/a><\/p>\n

The problem is that\u00a0\u201cfor every seller, there must be a buyer.\u201d\u00a0<\/em><\/strong>The chart below shows where volume exists at various price levels.<\/p>\n

<\/a><\/p>\n

Buyers appear closer to the 50-DMA when mutual funds start making distributions. I am not saying the market will correct to that level. It is where the most volume occurred previously and is the most likely support area.<\/p>\n

As the Wall Street axiom goes:\u00a0\u201cSellers live higher. Buyers live lower.\u201d<\/strong><\/em><\/p>\n

A Lump Of Coal<\/strong><\/h2>\n

The one thing the market does well is doing precisely the opposite of what you would expect.<\/p>\n

However, there is a strong likelihood that with the market short-term overbought, deviating from the 50-DMA, and volume declining, any additional selling pressure from mutual fund distributions could pressure prices short-term.\u00a0As shown, a correction generally occurs whenever most indicators are as overbought as they are currently. That does NOT mean the bull market is over. It only means that before the market can move higher, it needs a healthy reset to bring buyers back into the market.<\/p>\n

<\/a><\/p>\n

Does that mean the market can not move higher first? No.\u00a0However, if you feel pressure to chase the market higher into 2024<\/strong>,\u00a0a<\/strong>\u00a0pullback would provide a much better opportunity to increase exposure on a risk\/reward basis.<\/strong><\/p>\n

While there are no guarantees, a stock market correction in the first few weeks of December increases the odds that\u00a0\u201cSanta does visit Broad and Wall.\u201d<\/em>\u00a0<\/p>\n

However, beyond that, in 2024, I don\u2019t have a clue. Wall Street analysts are optimistic that the economy will avoid a recession, earnings will expand to support current valuations, and the Federal Reserve will start cutting rates. Anything is possible, but I am a bit more sanguine on outcomes when looking at the market on a longer-term basis, with economic risk to earnings.<\/p>\n

<\/a><\/p>\n

But we will delve into that more with the turn of the calendar. That is when we will better understand what to expect as portfolio managers return from their winter slumber.<\/p>\n

A Stocking Stuffer<\/strong><\/h2>\n

Since we have our\u00a0\u201cstockings hung by the chimney with care,\u201d\u00a0<\/em>we can stuff them with a few essential investment guidelines to navigate as we head into year-end.<\/p>\n

Investing is not a competition<\/em><\/strong>. There are no prizes for winning but severe penalties for losing.<\/em><\/p>\n

Emotions have no place in investing.\u00a0<\/em><\/strong>You are generally better off doing the opposite of what you \u201cfeel\u201d you should be doing.<\/em><\/p>\n

The ONLY investments that you can \u201cbuy and hold\u201d\u00a0<\/em><\/strong>are those that provide an income stream with a return of principal function.<\/em><\/p>\n

Market valuations\u00a0<\/em><\/strong>(except at extremes) are inferior market timing devices.<\/em><\/p>\n

Fundamentals and Economics\u00a0<\/em><\/strong>drive long-term investment decisions \u2013 \u201cGreed and Fear\u201d drive short-term trading. Knowing what type of investor you are determines the basis of your strategy.<\/em><\/p>\n

\u201cMarket timing\u201d is impossible<\/em><\/strong>\u2013 managing risk exposure is logical and possible.<\/em><\/p>\n

Investment is about discipline and patience.\u00a0<\/em><\/strong>Lacking either one can be destructive to your investment goals.<\/em><\/p>\n

There is no value in daily media commentary<\/em><\/strong>\u2013 turn off the television and save yourself the mental capital.<\/em><\/p>\n

Investing is no different than gambling<\/em><\/strong>\u2013 both are \u201cguesses\u201d about future outcomes based on probabilities.\u00a0The winner is the one who knows when to \u201cfold\u201d and when to go \u201call in.\u201d<\/em><\/p>\n

No investment strategy works all the time.\u00a0<\/em><\/strong>The trick is knowing the difference between a bad investment strategy and one temporarily out of favor.<\/em><\/p>\n

While anxiously anticipating the arrival of the\u00a0\u201cSanta Claus Rally,\u201d<\/em>\u00a0we must remember the lesson taught in 2018.<\/strong><\/p>\n

<\/a><\/strong><\/p>\n

Nothing is guaranteed.<\/p>\n

But that is why we pay attention to risk and manage our portfolios for the probabilities versus the possibilities.<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nTue, 11\/28\/2023 – 10:45<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/stock-market-correction-coming-santa-claus-rally<\/a>\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Stock Market Correction Coming Before The Santa Claus Rally Authored by Lance Roberts via RealInvestmentAdvice.com, Is a stock market correction coming before the Santa Claus…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1441004","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1441004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1441004"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1441004\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1441004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1441004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1441004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}