This is the time of year when spirits are lifted in anticipation of the holiday revelry to come. Historically, the joy of the season has extended to the stock market, as November and December tend to be among the best months of the year for equity investors. Of course, this isn’t always the case. We need only to recall last year when the S&P 500 fell nearly 20% from the September high to the December low. Indeed, it was as though the holiday spirit had taken a hiatus.
Though the stock market rebounded early this year, it wasn’t until the end of April that the S&P 500 had managed to get back to the September high from the previous year. In other words, it took seven months for stocks to simply get back to where they had started. Then, from May 1 through October, stocks essentially moved sideways. Finally, in November, stocks began a new march higher, with the S&P 500 up more than 3% for the month.
The stock market’s renewed strength in November provided the catalyst for FSA to bring most of the portfolios to their maximum equity allocations. The table below shows how each strategy is invested as of the end of November:
Despite the strong move in stocks for 2019, the S&P 500 index is only 7% above its level from September of last year.
What About December?
While history suggests that investors can look forward to a favorable market environment in the final month of the year, there exists a looming issue that could derail the so-called “Santa Claus Rally,” namely, the trade war between the U.S. and China.
Additional U.S. tariffs are scheduled to take effect on December 15, potentially impacting economic growth in the new year. Volatility could very well pick up in conjunction with the news and tweets flowing from the White House. The equity markets have been moving higher in hopes of a nearing trade deal, and the dimming of those hopes could very well halt the market advance. For as long as the trade war remains a dark cloud hanging over the equity markets, it will be difficult for stocks to make any meaningful headway.
As a reminder this time of year, many mutual funds will be paying their year-end distributions in December. When a fund pays its distribution, expect the price to drop, reflecting that payment. Once the proceeds are reinvested into your account (usually the next day), the fund’s value will increase back to normal.
Finally, we wish you and your families a wonderful holiday season and a new year that brings good health and happiness.
Mary Ann Drucker
Assistant Portfolio Manager
Disclosures are available at https://fsainvest.com/disclosures/market-update/.
FSA’s current written Disclosure Brochure and Privacy Notice discussing our current advisory services and fees is also available at https://fsainvest.com/disclosures/ or by calling 301-949-7300.