‘Santa’ already in town

December 12, 2017 09:35 AM

But is it Mr. Claus or someone else? This year is a bit different in the context of just how upbeat the equities outlook has become. This was somewhat the same last year on the pending regime change in Washington DC. Yet it has been injected with steroids on the new team actually looking like it can accomplish the tax reform that was in doubt after health insurance reform failure. However, the general psychology remains the same insofar as our long-standing views on the ‘Santa’ influence in the markets remains as always based on something more than a jolly old guy in a red suit. And U.S. tax reform will certainly provide a plethora of blessings for U.S. equities markets from multiple factors on the outlook for next year. Of course, as the market is a ‘creature of expectations’, that is being strongly reflected this year.

Whether the anticipated greater corporate investment and hiring on the back of lower corporate tax rates actually transpires is moot for the equities, as the sheer higher retained profits are boosting valuations. As we and others have noted repeatedly of late, that might end up in more potential for bigger stock buybacks and higher dividends rather than the promised investment and hiring.

Yet in the final analysis of the sheer equities trend, it is all very impressive and reinforces the natural tendency of ‘Santa Portfolio Manager’. That is to benefit others by needing to apply any excess cash to purchases of well-regarded stocks in positive equities years.

Already here
Based on this year’s extensive bullish anticipation, it is obvious that Santa is already in town, and tends to increase his influence in any event from Thanksgiving into the middle of December. As such, in spite of any setbacks, it is likely the U.S. equities will maintain their overall uptrend into this month by holding setbacks, like the one they held last week on concerns over the need to have a new U.S. continuing budget resolution.

And as this tendency goes back through many years of our late-year seasonal analysis, we are very comfortable repeating our assessment from years gone by…

[Original version posted Monday, December 23, 2013]

One of the key aspects which many market participants expect to be critical at this time of year is whether or not there will be a classical ‘Santa Claus’ equity market rally into the end of the year. And we say there is a certain element of humbug inherent in any such assumption.

Even as a Very Merry disposition is apparent in the recent major extension of the equities rally reinvigorated by the better prospects for U.S. tax reform, the question remains “Who is this capitalistic, market profit-oriented ‘Santa’?”

Of course, there is a question of whether anyone really believes Santa Claus exists in a market context in the first place, regardless of their personal life desire to believe or not. In fact, the idea there is a Santa Claus which visits the broad market indices in December is at least a bit of a misnomer.

‘Santa Portfolio Manager’
In truth, as we have noted each year, any benefits to the broader market into December is more so due to ‘Santa Portfolio Manager’, and whether he decides to provide joy from his cash hoard to the other market participants.

And his tendencies in that regard are self-serving rather than altruistic. He must assess whether it looks smarter to be holding cash or holding stocks. And that, in turn, has to do with the position of the market indices relative to their highs or lows of the year.

The further below their highs of the year (or indeed closer to their lows) the stock indices are trading into December, the less inclined that ‘Santa’ is to provide gifts to the other participants in the form of further purchases. Sort of a “Scrooge’s Scrooge” in those sorts of already trying times.

However, the closer the indices are to their highs of the year, the more so Santa Portfolio Manager is inclined to provide cash to the market so that he is fully invested at the calendar year-end… regardless of whether his overall returns for the year have been spectacular or second-rate.

To wit (to the tune of Santa Claus is Coming to Town)…

He buys them when they’re lower,
He buys them when they’re high.
Can’t have any cash on the books
When New Year’s Day is nigh.

No need to pout,
No need to cry.
He’ll only shout,
“Buy, Buy, Buy.”
Santa Portfolio Manager’s
Already in town.

About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.