GRINCH THAT STOLE THE SANTA KLAUS RALLY

As the so-called Trump Rally went on for the stock markets, I began to wonder if the Trump Rally was simply borrowing the Santa Klaus Rally?  Well that seems to be the case.  The Santa Klaus Rally wasn't negative but it was barely positive (see figure).

Traditionally the Santa Klaus Rally is the last three trading days of the old year and the first two trading days of the new year.  On this basis, the S and P 500 started the Rally period at 2268.88 on December 27, 2016, and ended it at 2270.75 on January 4, 2017 or an increase of  +0.082%.  The figures for other indices are: +0.19% for both the DJIA and the NASDAQ Composite, +0.58% for the NASDAQ 100, and +0.74% for the Russell 2000.

(Click on figuire to enlarge)

Another piece of Wall Street lore is that the first five trading days of the new year show you how the year will go on stocks: if positive, the year will be positive and, if negative, the year will be negative.  So how did it do.  I'm pleased to say it did pretty good.  The S and P 500 gained 1.34%.  The DJIA gained 0.63%.  The NASDAQ Composite gained 2.76%,  The NASDAQ 100 gained 3.31%; however the Russell 2000 gained only 0.02%.

Though this indicator is positive for 2017, we need to remember that 2016 started as the worst ever period for stocks although the year ended up quite good.  Also consider that most years are positive for the stock market so you would on average do well if you just stayed in the market year after year, called "long-term buy and hold."

* http://www.cnbc.com/2017/01/18/narrowest-dow-range.html
http://www.cnbc.com/2017/01/18/business-euphoria-over-trump-gives-way-to-caution-confusion.html

1987 STOCK MARKET CRASH (22% IN ONE DAY!)

I was investing on October 19, 1987 when the market crashed 22.68% on what has become known as Black Monday after a Friday drop of  4.6% on record volume*  from a much lower level than today.   At that time, trades were still done by hand and  I couldn't even get my broker on the phone.  By year end, both the DJIA and the S&P 500 ended up about 3%, not a lot but certainly not as bad as it looked at one time.  Thus I was nervous last Friday when the D{JIA dropped more than 500 pts in a day,because of the bounce back in 1987, I wouldn't despair yet.  Remember also that the stock market has risen in each year of President Obama's terms and that the year before a presidential election (as this one is) is often the best year of the presidential stock market cycle. 

While, the P/E of the DJIA at the close of business on Monday is within the "normal" range (15.19), the S&P 500 is still high, though the dividend is much higher than a year ago (2.71% Monday vs 2.23% a year ago).  The P/E of the S&P 500, however, is still in the "bubble" range (21.63) although there too, the dividend is much higher than a year ago (206% vs 1.90).**

Both the DOW Utility and DOW Transportation indices are still somewhat high (16.30 and 17.10) though the dividends of both are much higher than a year ago ( 3.65% vs 2.71% and 1.49% vs 1.09% respectively).**

I don't know what is normal for the Russell 2000, but the P/E is actually higher than a year ago (89.22 vs 78.97) although the dividend is much higher today (1.48% vs 1.29%). Although I also don't know what is normal for the NASDAQ 100, the P/E still looks in the "bubble" range though a tad smaller than year ago (22.35 vs 23.06 a year ago).  In this case, however, the dividend is also somewhat smaller  (1.21% vs 1.28%).**

While the U.S. economy has only 13+% of its GDP dependent on exports, a stronger dollar would hurt our economy only a little bit.  A stronger dollar, however, would hurt the country more; however, the dollar index has gone the other way (for now) at 93.33 on Monday, down from 96.81 a week ago.

Our exports grew by 27% from 2009 through 2013, adjusted for inflation. China, it should be remembered China is only number 3 of our export countries, Mexico and Canada each being larger.  See predominant export and import by state:***

Predominant Export by state:

 Predominant Import by State:

* https://en.wikipedia.org/wiki/Black_Monday_(1987)
** http://online.wsj.com/mdc/public/page/2_3021-peyield.html
*** http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS;
http://trade.gov/neinext/role-of-exports-in-us-economy.pdf;
http://www.ibtimes.com/us-economy-2015-check-out-top-imports-exports-every-us-state-1910766