Last Week in Brief, November 29th

December 3, 2013

Stocks rose for the eighth consecutive week amidst the Thanksgiving holiday. The S&P 500 climbed another three percent in November. Its third straight monthly advance. The market now rests above 1800. Historic levels, for which we should be thankful.
While large caps finished with meager gains, the Russell 2k index advanced 1.6 percent, justifying our overweight in small cap stocks. You'll recall that we've been touting small caps, and their ability to outperform in the current environment (Good Things in Small Packages... click here).
As Thanksgiving abates, the Christmas holiday begins. This nation will shop -- morning, noon and night, through the midnight masses of December 24th. Let us save you the trouble.
Behold Skyrunner, the coolest gift for 2013's most adventurous families.
Here are twenty-five unique gifts for her.
And here are twenty-five gifts for him.
The Good
U.S. household debt hit a new low, as reported in a recent Federal Reserve report. Both the "household debt-service ratio" as well as the "financial obligations ratio" declined in Q2.
Positive recent trends in rail and freight traffic, as well as dry bulk shipping, point to better things ahead. All three have seen increases in activity and pricing. And all serve as barometers for the U.S. (rail and freight) and global (dry bulk) economies.
Finally, Zillow's Negative Equity Report showed that Q3 negative equity rates in U.S. homes fell at the fastest pace yet. Only 21 percent of homeowners remain upside down, off of the 31.4 percent peak in Q1 2012.
The Bad
There has recently been a preponderance of comparative charts showing this year's market trends against that of 1929. The idea? The charts are similar. So, at some point, this market will also fall off a cliff.
While these analogs tend to amount to nothing more than speculative tea leaves that eventually diverge and prove nothing, they can (for a time) stir up negative sentiments and itchy trigger fingers.
These charts are especially frightening atop the mounting crescendo of "bubble" forecasts.
In 2008, so many failed to predict so much that today, forecasting worst-case scenarios and identifying potential bubbles is a sport. One that will not likely reside until there is a correction (big or small) and all the Chicken Littles can shout, "Told ya!"
The Bottom Line
Seasonality is on our side.
The Santa Claus rally is a Wall Street cliché that is supported by history. Since 1970, and the inception of the ERISA laws, the year-end rally has been strengthened by the influx of late-December retirement plan contributions.
So, even with this year's robust returns, it's not crazy to think that the year could offer further gains. In fact, Bespoke Investment Group recently pointed out that, the stronger the market's performance from January to October, the stronger the odds for, and performance of, the Santa Claus Rally.
83 percent of the time there has been strong Q1 through Q3 performance, the market has ended with strong Q4 performance. That compares with 50 percent of the time when the first three quarters were negative.
The average Q4 gain? 6.7 percent. A third of these year-end rallies have enjoyed double-digit gains.
And with investor sentiment remaining blasé, we think the positive trend has legs.
The American Association of individual investors reports that its membership is nowhere near bullish extremes. Moreover, Bank of America Merrill Lynch recently reported that institutional investors remain bearish and continue to underweight equities.
Nobel Prize winning economist Robert Schiller says the market could be set up for a big correction. Renowned economist and market guru Jeremy Siegel says that stocks are 10-15 percent undervalued.
Who can you trust?
That's the point! There all guesses. So long as Main Street and Wall Street remain indecisive and bearish, there's money to be made.
So, how might you benefit by the current trend? Investors should:
1. Ignore the headlines. Everyone is distraught by the failed ObamaCare rollout. Yet, the negativity is not impacting markets.
2. Sell losing positions early. Too many winners to fret over 'em.
3. Don't time the market.
4. Do not become emotionally invested in anything but family and friends.
5. Contact us. We'll position you for success (here).
Weekly Results
Major markets finished slightly higher last week. The DJIA rose 0.13%, the S&P 500 gained 0.06%, and the Nasdaq advanced 1.71%. Small cap stocks climbed 1.60%. And the 10-year Treasury bond yield gained 1 basis point to 2.75%. Gold gained $7.76 per ounce, up 0.62%.

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