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Jeff Saut: 'Tis the Season for Superior Market Performance


Mix some holiday cheer with sectors like energy, consumer non-cyclicals, basic materials, and REITs.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

'Tis the season... except in this case we haven't quite yet entered the Christmas season. However, we have entered the best six months of the year for the equity markets. Clearly, history demonstrates that the November through April periods have on average shown superior stock market performance to that of the May through October half of the year.

As our South African friend Dr. Prieur du Plessis notes, "(Since 1950) the 'good' six-month period of the year shows an average return of 7.9%, while the 'bad' six-month period only shows a return of 2.5%." Also see his article from this morning, Bernanke Built It, But They Did Not Come.

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In addition to the aforementioned seasonality, there are some equally compelling shorter-term metrics. To wit, over the past 12 years the Dow Jones Industrial Average (DJIA) has always shown a profit between November 11 and December 5. Additionally, since 1976, the DJIA has posted a positive return between October 26 and January 1 every year except 2007. As for those that suggest the markets have rallied too far too fast, we offer these comments from the always insightful folks at The Chart of the Day.

To provide some perspective to the current Dow rally that began back in March, all major market rallies of the last 109 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow. As today's chart illustrates, the Dow has begun a major rally 27 times over the past 109 years which equates to an average of one rally every four years. Also, most major rallies (73%) resulted in a gain of between 30% and 150% and lasted between 200 and 800 trading days (9.5 months to 3.2 years) -- highlighted in today's chart with a light blue shaded box. As it stands right now, the current Dow rally would be classified as both short in duration and below average in magnitude.

To us the real question isn't whether this is a counter-trend rally in an ongoing bear market, but rather is this the beginning of a new secular bull market, or a bull market within the confines of the trading range we have been in for the last nine years?

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No positions in stocks mentioned.
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