How to Trade the Rest of the Year - Goldman Sachs 40 comments
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Goldman is increasingly confident in the end of year rally. In fact, a recent piece of research says December could be one of the strongest months of 2009 (not an easy feat considering the year we’ve had). Like other bullish investors, they believe seasonality will be an important influence on year-end action:
As we move into the year end, we take a look at the seasonality effect in equity markets. December stands out as one of the best months for equities, using both long- and short-term data; we think this year will be similar. In years when the first 11 months have yielded good returns, December has tended to be particularly strong.
December yields good returns on average
Based on monthly data going back to 1974, December has on average returned twice as much as the monthly average (1.7% vs. 0.8%). It is the third best month based on average data and the second best one using median data. It is interesting to note that January is also a good month for equities based on long-term data. December and January both yielded a positive return in more than 70% of the cases.
Goldman goes on to note that December is particularly strong when the current year has been strong:
The better the year, the better the December
There have been worries among market participants that the year end could see weakness in equities, following the strong year-to-date performance. However, historical data tell the opposite. In years when the return from January to November has been strong, December has tended to be very strong as well.
How to play it? Don’t rely on commodities to continue their inverse dollar surge. In fact, the best performing assets in big years have been financials cyclicals:
Oil & Gas has underperformed historically in December
Commodity related sectors exhibit the lowest relative returns among all sectors in December. This holds even when restricting the sample to years when the market went up by more than 20% in the run-up to December. Conversely, Financials and selected Cyclicals have been the best performing sectors in December when the market has risen by more than 20% in the first 11 months. Looking at countries, the results are less interesting as the differentiation is less marked than between sectors. Germany stands out as the best performing country on average in
December.Conditional seasonality: The better the year, the stronger the December
Recently, there has been a lot of talk in the investor community about de-risking and investors locking in their performance for the year. This has resulted in more bearishness going into the year end, as many have questioned the potential for further market upside based on the sustainability of the economic recovery. A seasonal analysis conditional on year-to-date performance tells a very different story. The better the performance has been from January to November, the more positive the return has tended to be in December (Exhibit 5).
Where to play it? Italy and Germany have been the best performers:
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I disagree with the remark about commodities, count on commodities to continue upwards; especially natural gas which just seems to have bottomed this week. UNG is up 6% as I type and HNU is up 14%. Sure the regular markets have to move upwards to support the commodities continuation.
Also, it looks like new records will be set for the precious metals this December.
Marco G.
Compare apples to apples and oranges to oranges.
They were harping in August of a September since Sept was on average a bad month.
But they made erroneous statistical analysis of Sept and Oct lumping all Septembers and Octobers in all market conditions.
Bullish preceding months usually results in bullish Sept, Oct, Nov and Dec and usually last up to early January.
Bearish preceding months like last year resulted in a meltdown Sept to Nov.
That is the major problem with most statistical analysis: they lump up all the chickens, pigs, camels, elephants, etc. in one measuring machine and say this is the average weight and average height, etc.
Then if you try to build a cage for each of them using the average findings; you end up doing the wrong thing.
How to trade the rest of the year?
1. Go to Ben and Tim and ask for $$$billions of taxpayer money.
2. Invest it in anything and everything.
3. Do the "Alfred E. Newman" shuffle... What? Me worry? (After all, money grows on the taxpayer trees for these guys...)
On Nov 25 04:19 PM bottoms-up wrote:
> Gold-damn Sachs, as we say around here...
>
> How to trade the rest of the year?
>
> 1. Go to Ben and Tim and ask for $$$billions of taxpayer money.<br/>
>
> 2. Invest it in anything and everything.
>
> 3. Do the "Alfred E. Newman" shuffle... What? Me worry? (After all,
> money grows on the taxpayer trees for these guys...)
On Nov 25 06:32 PM Belome wrote:
> They throw a few million into a small business charity and say they're
> sorry after they pay themselves billions in bonuses after they get
> billions in bailout money...where is the outrage?
b sut Gold is 20% above its 200 DMA.seekingalpha.com/artic...
so if I follow GS seasonality is correct ,public should buy gold instead of goldman ?
To all the GS doubters...they've basically been right all year. Liking someone/something is not necessary for agreeing with someone/something.
I never laughed so hard at a posting on SA in my life.
Have a great Thanksgiving sethmcs!
On Nov 25 04:40 PM sethmcs wrote:
> What me worry? I am going to give each of my family members 1 share
> of GS for Xmas.
About the performance of oil. All you have to do is to look at the kind investments that are being made in the Middle East. Those countries are NOT going to let the price of oil collapse, regardless of what the know-nothings say.
On Nov 25 10:41 PM DHH wrote:
> They paid back the bailout money. And then made some for themselves.
> Use your brain and make some $ yourself. No need to be jealous.<br/>