Sunday, December 6, 2015

Week In Review (11/30 - 12/4)

Friday's broad rally in stocks repaired the damage done on Wednesday (S&P 500 down 1.1%) and Thursday (S&P down 1.4%) and the S&P was able to finish the week with a slight gain of 0.1%.  The S&P surged 2.1% on Friday as the market seemed to signal an "OK" to an increasingly likely move by the Federal Reserve after the November employment report came in just slightly higher than expected.  This stood in stark contrast to Thursday's market action where traders sold-off stocks after the latest European Central Bank policy announcement was viewed as underwhelming.

While big caps managed to finish the week with slight gains, small cap stocks were not able to keep pace as the Russell 2000 lagged and finished the week down 1.6%.

With 4 trading weeks left in 2015, here's where the domestic indexes stand:

As has been the story for most of the year, the Nasdaq has been the only source of returns for the US stock market.

We're sure you've seen plenty of year-end / "Santa rally"-type commentary over the last week so we'll resist from saying too much.  Steve Deppe, of Nerad & Deppe Wealth Management, offered up some interesting observations on the typical December and they became more compelling as the week unfolded.  He said:

"Since 1950, the calendar month of December has closed higher 75.38% of the time with average returns of 1.67% (using the S&P 500 as a proxy). The average monthly draw up for December the last 65 years, as defined by measuring December’s high from November’s close, is 3.22%. With Monday’s close at 2,080.41, this would target a December high of 2,147.39.

If history is any guide, it’s reasonable to expect new all time highs in December.

Will these highs demonstrate sustainability? That’s the trillion-dollar question. December’s average drawdown, as defined by measuring December’s low from November’s close, is -2.24%. However, the median December drawdown is just -1.28%.  Normalized December weakness would target a December low anywhere from 2,033 to 2,053. A pullback to this price level is not a reason to call a top, panic, or think the next correction is underway."

The market's lows on Thursday and Friday fell squarely into Deppe's suggested range of 2,033 - 2,053 for a "normal" pullback that could be expected at some point this month.  If history holds in this case, the lows for the month may be in and the market could be looking to challenge all-time highs before year-end.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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