Traditionally, the markets experience a “Santa Claus Rally” between Christmas and the New Year. Leading up to Christmas, stock performance is mediocre to average at best. After jolly St. Nick makes his appearance, stocks have tended to rise.
Despite the rumblings of a late-year rally, the entire four-day weekend was a disappointment, from a holiday shopping season standpoint, beginning on Thanksgiving Day.
Though stores, such as Macy’s and J.C. Penney opened their doors for the first time on Thanksgiving Day and there were 2 million more shoppers this year, they couldn’t stop total sales at stores and online from declining nearly 3% to $57.4 billion. Given Thanksgiving occurred at the latest date possible, the 28th, the holiday shopping season is shortened. This caused many retailers to begin offering promotions and discounts earlier than normal. Retailers probably pulled some of their sales numbers forward. Additionally, while we’ve witnessed a tremendous rally in the stock market, most lower-income individuals are still hurt by a more fragile economy, job market, and minimal disposable income growth.
Online spending increased 15% to $1.2 billion, establishing a new Black Friday record drawing consumers away from traditional brick-and-mortar stores. The average amount spent per consumer was slightly more than $400, which was about 4% lower than last year. Fortunately, a weak Black Friday did not foreshadow a weak Cyber Monday. At the expense of employers across America, workers surfed the web to do some holiday shopping. Sales surged more than 20%, setting a new single day record for online sales. Mobile traffic, i.e., shopping using a smartphone and tablet, soared an incredible 45%, accounting for about a third of website visits.
Overall, the stock market has been kind to those who fully invested in 2013. Including dividends, the S&P 500 has gained more than 29% through November. A Gallup poll taken in May, showed retail investors were significantly less inclined to take on the risk of holding equities relative to years past, as many were left stinging from the loss during our latest recession. Sadly many have been left out of the robust returns. At this point, some have speculated whether we are in an over-extended bull market, i.e., stock market bubble. However, when you look at history, there is evidence to refute these fears.
Since 1970, the S&P 500 has experienced 10 years in which the total annual return exceeded 25%. In eight of those 10 occurrences, the following year delivered additional gains. In fact, including the two years in which the market declined, the average return is 14.07% the following year. The two negative years were 1981, where the S&P 500 fell 4.92%, following a 32.5% rise in 1980, and 1990, where the S&P 500 declined 3.1%, following 1989’s gain of 31.69%. Both 1980 and 1990 marked the beginning of a short recession, as economic growth waned, and interest rates were reduced in an attempt to boost growth. We do not see evidence of an impending recession, and interest rates couldn’t possibly be lowered any further.
Such performance begs the question, “Are stocks expensive after such a great increase?” Once again, using history as our guide, we note the long-term average price-to-earnings ratio for the S&P 500 is about 16.1. The S&P 500’s current P/E is 16.5, which puts the benchmark index approximately 2.5% above its long-term average. This leaves us comfortable with the market’s valuation. Those investors left on the sidelines in 2013 are likely to be a source of price appreciation as they return to the market, but the biggest factor will be earnings growth, which we project at 12% next year. Overall, the current situation leaves us hopeful the market will repeat history and follow 2013’s rally with another positive year in 2014.
Of course, this doesn’t mean 2014 is sure to be positive. Recent history shows events, like Japanese tsunamis and Middle-East unrest, are capable of roiling markets in the short-term. These events and many others are impossible to forecast, but may impact financial markets.
At Henssler Financial we believe you should Live Ready, and that means understanding the fundamentals that drive the market. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
