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The Northern Star 12/20/18 Stocks Down, Change Ahead?

Message from Jon

Market Update:

With the year-end approaching quickly, the overall expectation of the "Santa Claus Rally" that once was a staple of investor psyche is now all but expired for the year. With 8 trading days left and the market's conditions continuing to deteriorate, even with a late rally, it may simply not be enough to turn the tide of pessimism that currently resides in the minds and hearts of investors.

Reading through my weekend list of newsletters, articles, and topics of interest, there was a bevy of material with a pessimistic slant to it.

According to the University of Michigan study "Stock Market Extremes and Portfolio Performance," out of the 31 years from 1963 - 1993, just 90 days made up 95% of market gains. This averages out to 3 days per year making up 95% of gains.1 This definitely puts into perspective some of the frustration investors are feeling as of late.

While I have been speaking with clients, I have said numerous times that I am expecting a down-turn that is possibly the worst ever beginning around 2020-2022 for many reasons. Today was the first article I have seen come out with a similar stance to it talking about a recession probability around 2020-ish.2

One of the best articles I came across demonstrating and articulating how a bear market works was by David Haviland of Beaumont Capital Management titled "Anatomy of a Bear Market," where he describes 13 bear markets since WWII, how long they last, and how far they drop.3 This is really interesting material that helps to visualize a bear market (which I believe we are already in at the beginning stages) and what, if we are accurate, we can come to expect in the near future.

As I have said prior, we have already reduced risk levels for clients and continue to monitor and make changes as the market conditions warrant.

Till we speak again, I hope you get all of your Christmas Prep finished!



  1. Stock Market U of M PDF
  2. https://www.yahoo.com/finance/news/history-shows-u-recession-probably-150201052.html
  3. Anatomy of Bear Market PDF

Stocks Down, Change Ahead?


Last week brought more volatility to the markets. While domestic indexes had some rallies as positive trade news emerged earlier in the week, by Friday, December 14, they had erased any gains. The last time major U.S. indexes ended in correction territory was March 2016, meaning they are now at least 10% below their highs from the past year.[1]
For the week, the S&P 500 dropped 1.26%, the Dow lost 1.18%, and the NASDAQ declined 0.84%.[2] International stocks in the MSCI EAFE also had a 0.89% weekly loss.[3]

Why did markets struggle last week?

With last week's declines, the S&P 500 was in the midst of its worst December since 2002.[4] Concerns about global growth fueled much of the declines as China and Europe released economic data that missed projections.[5] The ongoing trade tension contributed to slower growth in China, which drove some investors to worry about U.S. growth, as well.

We did, however, receive solid domestic data last week, including a healthy retail sales report.[6] But, through the week, investors seemed less interested in this data and positive trade updates, focusing instead on understanding the global economy's standing.[7]

What might be ahead?

This week presents a potentially significant event for domestic markets: the Federal Reserve's commentary after its latest meeting. The Fed will likely raise interest rates during the meeting, which would be the 9th increase since December 2015. Markets expect this hike, but what investors aren't sure about is how the Fed will describe its plan for 2019. Some analysts believe that if the Fed indicates it will pause or slow rate hikes next year, we could see a sizable "Santa Claus rally" through the end of December.[8]

For short-term traders, predicting whether 2018 will stay in negative territory or stocks will end the year on a surge is in many ways a guessing game. What we are here to do is help you manage your investments for the long term. We will follow this week's developments closely and strive to determine how they may affect the economy going forward. Ultimately, we are focusing on your goals not just through the year, but for the rest of your life.

Monday: Housing Market Index
Tuesday: Housing Starts
Wednesday: Existing Home Sales, FOMC Meeting Announcement
Thursday: Jobless Claims
Friday: GDP, Durable Goods Orders, Consumer Sentiment

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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