A Christmas Rally
The S&P 500 has rallied strongly off the 1100 level tested in early October. Company earnings have continued to be strong, which has offset the news flow from Europe. Historically, November is one of the best months to be in the stock market, even producing better returns than January. The average return in November is 1.41%. December is even better and has been the No. 1 month for stock returns for the S&P 500 index since 1950. The large-company stock index has posted average gains of 1.65% in December. The consistency of the gains in December is also impressive, with gains 77% of the time since World War II. With such a strong seasonality record, odds favor continued gains despite the negative economic environment. The largest sector gainers during the past two months historically have been technology and financials. Thus for the short term, we have increased our positions in those sectors. In the past 30 days, we have added Cisco to our large cap value portfolio and Charles Schwab to the large cap growth portfolio. Although our short term outlook is positive as long as the S&P 500 can break through the 1270 level, the longer term outlook will most likely offer investors more disappointment. There is a tremendous amount of resistance at the May price highs. If we approach this level, investors will need a further improvement in the economic environment to push stocks to new highs.
