Skip to content
Meet with Scottsdale Financial Planner Steve Jurich - (480) 902-3333 Schedule Online
Schedule Online | Scottsdale Financial Planner Steve Jurich | (480) 902-3333

How To Benefit From The Santa Claus Rally, The January Effect, and the USMCA, Right Now

Recently on Mastering Money we covered a market anomaly known as the Santa Claus Rally. The Santa Claus Rally has a fairly strong track record and therefore is given credence by many professional investors. The next day we covered another market anomaly known as the January Effect. What are they and what do you need to know?

And most important–could you benefit from one or both anomalies?

In this blog, we’ll review what they are and how you can benefit if you are a long term smart investor. Sorry, I won’t be providing answers on what short term trades to make! I leave that to the gamblers and speculators.

That said, it is natural and normal that you would want to enter stock positions at more favorable times. And now due to a confluence of the Santa Claus Rally and the January Effect–two short term happenings–together with major long term forces like the passing of the USMCA (U.S., Mexico, Canada) Trade Agreement, a China Deal in the works, and a quiet Federal Reserve, investors who are still on the sidelines may be looking a nice opportunity right in the eye.

It’s dangerous to try to time markets to collect short term gains. So much can go wrong because you are “playing” the market, not working at being a student of the market, or learning to master it. But something else about market timing can lead to long term disappointment and mediocre results: Being a market timer in retirement can lead to a case of “sideline-itis”…where you are always waiting for the “next big crash” to put your money into the market.

That’s why bucketing your money is so sensible and why investing in dividend growth stocks may make the most sense of all. If you have a long term belief that good companies, making good profits which have survived many downturns will continue to show strength over time, why not own them, and keep them in your long term growth bucket?

If you allocate your money wisely into strategic buckets, you don’t have to stress or strain about the daily or weekly ups and downs because you have your growth bucket alongside a dedicated fixed income bucket, backed up by a liquid cash bucket. Financially, you are “ready for anything.”

Your timing, right now, ahead of these five factors mentioned above, could be very good. Dividend stocks in particular are not overpriced at all. There are many non-dividend stocks that are indeed high and that I don’t recommend, regardless of the five factors. I’m a strategic investor and manager. I don’t like “playing” the market. I like metrics and mathematics. Therefore, I look for true value–companies actually making money and turning nice profits.

Knowing what you are buying is important, but you also must understand the economic environment you are entering.

Here are the questions to ask yourself:  Is the economy strong, or  is it heading down? Are there reasons the economy can keep growing, or are we seeing weakness and are people being laid off?  Are interest rates low enough to keep residential real estate and consumer spending moving forward? Ask yourself for the answers to these factual, data-driven questions.

When you can answer all of these questions to the positive side, you may be hurting yourself NOT to move some of your retirement money into a well managed, strategic dividend growth portfolio focused on blue chip long term winners. With a solid dividend growth strategy, you can put your boat in the water right now, start collecting dividends, and stop worrying about ups and downs. In fact, with dividend growth stocks, your dividends grow every year. If the market takes a step backward and stock prices fall, your rising dividends keep buying more and more shares at bargain prices. In the long run, you actually may win from down markets. You certainly don’t need to fear them, especially if you have the right amount of money allocated (not too much, not too little) in your growth bucket.

So let’s park for a moment in front of the five factors creating a potentially excellent time to enter a dividend portfolio. First, let’s start with the short term anomalies–not from a speculative standpoint, but from a market ENTRY standpoint.

A Santa Claus rally refers to a sustained increase in the stock market that can occur in the last week of December through the first two trading days in January. Why? There are many thoughts like tax considerations, heightened consumer spending, a general feeling of optimism and happiness on Wall Street and the investing of holiday bonuses.

The January Effect is the seasonal tendency for stocks to RISE in the first MONTH of the YEAR. From 1928 through 2019, the S&P 500 rose 63% of the time in (57 times out of 91). One study from Solomon Brothers showed that January has outperformed the other months by .082% on average. So the odds are in your favor but of course, it is not a lock.

That’s why being a VALUE investor is so smart. As a value investor, you are buying quality companies at fair prices by definition. That’s what “value” means. Value means that the company’s price is in line with its fundamentals. So, it is always a good time to buy a value company–one that actually make money in the real economy. When those companies share profits with their investors, and do so every year, you have another leg up. But all of us like a little bit more of a leg up. So, if you are looking for a potentially strong time to enter a value/dividend portfolio, the Santa Claus Rally and the January Effect may provide it for you.

Since the beginning of the 20th century, the data suggests that the January Effect has worked to the plus side. Investment banker Sidney Wachtel first noticed the effect in 1942. As a historical trend, however, it has been less pronounced in recent years because people are more aware of it, and the markets seem to have adjusted for it.

Another reason analysts consider the January effect less pronounced in recent years is that more people invest in IRAs, 401ks, 403bs and other tax deferred retirement plans and therefore have no reason to sell at the end of the year for a tax loss. The tax loss idea is only part of the story however.

Beyond tax-loss harvesting and repurchases, as well as investors putting year end cash bonuses into the market, another explanation for the January effect has to do with investor psychology. Some investors believe that January is the best month to begin an investment program or perhaps are following through on a New Year’s resolution to begin investing for the future. WE all like a fresh start, and we all like doing smart things with out money. Right now may be a great time to get a HEAD start and perhaps get ahead of the crowd. As I said, the big factors are even more important: The USMCA, the coming China Trade Deal, and a quiet cooperative Fed. Add to that a ton of defense contracts coming in with over $700 billion in funding for the U.S. Military signed into law, and you have a recipe for a pretty nice 2020.

With a smart bucketing plan to keep you better positioned for multiple outcomes, and the Black Diamond Dividend Strategy in your growth bucket, getting out in front of the short term and long term positive influences presenting themselves right now could be one of your smartest money moves of 2019 or early 2020.

Best Selling Author and Kiplinger Contributor, Steve Jurich

Leave a Comment