By Mickey Welcher
The final month of the year is historically a good one for the stock market, and 2016 is proving to be no exception. We have already seen a noteworthy rally since Donald Trump was elected President and that should continue throughout December.
The bigger questions, though, are why is this month typically a good one and what should investors do? To the first question, there are several answers. First, hedge and mutual funds want to show their clients they are strong in stocks, so they start buying them at a faster rate, pushing the market higher.
We also have the typical “Santa Claus Rally” in which share prices surge between Christmas and New Year’s Day. While no one knows for sure why this phenomenon occurs, common explanations include tax considerations, happiness on Wall Street, people investing their Christmas bonuses and the fact that naysayers are usually out on vacation.
Additional factors creating a bullish stock market right now include the announcement by the Organization of Petroleum Exporting Countries that its members will be cutting oil production. That will help boost energy companies that have been on a big run the past few days and make up a sizable portion of the Dow Jones Industrials and S&P 500. The most recent U.S. jobs report also showed significant growth in employment, helping to raise stocks.
To the second question, what should investors do, here’s my take: Nothing. Stay in your properly allocated portfolios and enjoy the rally. The market wants to go higher — at least for the short term — so it’s best to ride it. Of course, if you’re not sure what it means to have an optimal asset allocation, ask a Registered Investment Advisor for help.
There will most likely be work to do in 2017, though, so your breather will be short. January may be a different story for stocks due to several factors. For one, the Federal Reserve, while almost guaranteed to raise rates when they meet on Dec. 13 and 14, may do so more than once in 2017. Earnings reports will also be announced next month and have a meaningful impact in shaping the market next year.
But those concerns can come after you partake in all the holiday parties and eggnog that you can stand. So for now, enjoy the rest of 2016. You’ve earned it!
Mickey Welcher is founder of Envestim, a low-cost financial advisory firm for anyone looking to start or manage their portfolio. He can be reached at mickey@envestim.com.
