After Xmas rally ... better time to rebalance?

[Lsbcal]

This article about the post-Xmas market behavior might suggest rebalancing before 2019 ... maybe on Dec 24 late in that session:

https://www.marketwatch.com/story/santa-claus-is-coming-to-wall-street-after-christmas-2018-12-18

Consider the period beginning the day after Christmas and lasting through the first two trading days of January. (In focusing on this trading period, I follow the lead of the Stock Trader’s Almanac.) As you can see from the chart below, the Dow historically has produced an average gain of 1.49% during this period, versus a gain of 0.15% during all other six-trading-day periods of the year.

The current estimated PE for the SP500 next 12 months is 16.15. Actually will probably be lower after this week's data.

I don't usually rebalance into a declining market but there are no real recession signs so I just might rebalance. Santa just might be late for us.

Thoughts?

 

[audreyh1]

I don’t know. People seem to be doing tax loss harvesting this month and they have until Dec 31. The pattern this Dec has been different from the usual.

 

[NYEXPAT]

Keep in mind that stocks close at 1 pm and bonds at 2 pm on the 24th!

 

[Lsbcal]

Keep in mind that stocks close at 1 pm and bonds at 2 pm on the 24th!

And that would be 10am PST. Thanks, was wondering about that.

 

[Lsbcal]

I don’t know. People seem to be doing tax loss harvesting this month and they have until Dec 31. The pattern this Dec has been different from the usual.

I wish someone would give me a rough idea of how much tax loss harvesting is a factor in down December markets. Seems that those who want to do this might have already used up their $'s.

 

[Spock]

Statistically " Dow historically has produced an average gain of 1.49% during this period"
Also, statistically this is the worst December since the great depression...


Lies. Damn Lies. And Statistics.

 

[foxfirev5]

Yeah I did Roth conversions way too early this year.

 

[LOL!]

I wish someone would give me a rough idea of how much tax loss harvesting is a factor in down December markets. Seems that those who want to do this might have already used up their $'s.

Tax loss harvesting seems to be all the rage over at bogleheads.org, but the two major transactions are
Total US Stock Market exchanged to S&P500 or vice versa
and
Total International Stock Market exchanged to FTSE All-world ex-US stock market or vice versa.

That is, there is zero net selling of equities from tax loss harvesting and thus no applied down pressure.

As for post Xmas market behavior, no one can predict the future, except I will predict that in the US at some point a federal budget bill will be signed by a president.

 

[Which Roger]

Whenever I see this sort of data mining I'm reminded that the statistic most closely correlated with stock returns is (was?) butter production in Bangladesh.

 

[joeea]

As for post Xmas market behavior, no one can predict the future, except I will predict that in the US at some point a federal budget bill will be signed by a president.

Can you predict a year at least?

 

[Lsbcal]

Whenever I see this sort of data mining I'm reminded that the statistic most closely correlated with stock returns is (was?) butter production in Bangladesh.

That is completely unbelievable though. I never got that analogy which is all the rage on Bogleheads.

 

[Which Roger]

That is completely unbelievable though. I never got that analogy which is all the rage on Bogleheads.

When I read about it, one of the author's points was that although most people would recognize the absurdity of assigning any significance to this correlation, there are many other statistical correlations that might seem much more legitimate but yet are no better in predicting returns.

 

[Lsbcal]

The article I linked to says:

Since 1896, in fact, the Dow has risen 76% of the time from Christmas through the first two trading days of January, versus 56% of the time during all other six-day periods in the calendar.

So maybe there is some underlying mechanism that gives better results or maybe just a statistical fluke. But butter production in Bangladesh is clearly stupid, not even a "maybe".

BTW, the estimated PE for the next 12 months is now 15.1 .

 

[audreyh1]

I wish someone would give me a rough idea of how much tax loss harvesting is a factor in down December markets. Seems that those who want to do this might have already used up their $'s.

The thing is, as stocks drop more, there is more opportunity for tax loss harvesting. Things that had gains turn to losses.

 

[Lsbcal]

The thing is, as stocks drop more, there is more opportunity for tax loss harvesting. Things that had gains turn to losses.

Since this week was unexpectedly bad (by yours truly expectations), I guess there is more impetus for tax loss harvesting. That is, not just flipping positions but selling and not reinvesting in something else. Sell a winner, and sell a loser too.

 

[LOL!]

Can you predict a year at least?

Sorry, no. Next you'll be asking which president.

 

[NYEXPAT]

That is completely unbelievable though. I never got that analogy which is all the rage on Bogleheads.

If they weren't hedging their portfolios or buying "put" protection, why would anybody care what they are doing on some other site?

 

[Lsbcal]

If they weren't hedging their portfolios or buying "put" protection, why would anybody care what they are doing on some other site?

If I understand your comment correctly, an independent spirit should not worry about what the community view is. Seems particularly true in the stock market. But then there is that little voice in one's head that says you are not going the saintly way ... you are a market timing heathen.

 

[NW-Bound]

If I understand your comment correctly, an independent spirit should not worry about what the community view is. Seems particularly true in the stock market...

A stock market is only a market if there's at least one buyer and one seller. This means that there has to be at least one other investor besides you.

So, why should you not care what that other investor thinks?

 

[Lsbcal]

Well that other investor is clearly on the wrong side of my trade.

 

[NW-Bound]

Well that other investor is clearly on the wrong side of my trade.

I wish I could say that about my trading counterpart in my recent equity trades. Whatever I bought from him recently tanked. Darn!

On the other hand, I cleaned out the other side of my option trades. All of the covered call options I sold to him ended up worthless.

Sadly for me, my total gain on the options is only 1/6 of the total loss on the stocks.

By the way, I think the other side of my option trades is a computer belonging to a market maker(s). It constantly adjusts the option pricing to follow the stock current value, using Black-Scholes model or something such.

PS. Well, it's probably the same computer that sold me stocks, while buying the options from me. Net, it still wins. Darn!

 

[audreyh1]

Tax loss harvesting seems to be all the rage over at bogleheads.org, but the two major transactions are
Total US Stock Market exchanged to S&P500 or vice versa
and
Total International Stock Market exchanged to FTSE All-world ex-US stock market or vice versa.

That is, there is zero net selling of equities from tax loss harvesting and thus no applied down pressure.

As for post Xmas market behavior, no one can predict the future, except I will predict that in the US at some point a federal budget bill will be signed by a president.

Since this week was unexpectedly bad (by yours truly expectations), I guess there is more impetus for tax loss harvesting. That is, not just flipping positions but selling and not reinvesting in something else. Sell a winner, and sell a loser too.

It’s true that tax loss harvesting should be net neutral, however I suspect quite a few folks wait for more selling to be done to reinvest, or even choose spot sit out the 30 day wash sale period. The disciplined bogleheads folks are probably a minority.

 

[Winemaker]

...... except I will predict that in the US at some point a federal budget bill will be signed by a president.

This is part of the problem, we keep running on continuing resolutions, hence, the threat of political shutdowns.

 

[Lsbcal]

If one looks at 2 declines that did not have a recession scenario, it took maybe 3 to 4 months before the market really started climbing back. So maybe I've been too focused on minutiae in the OP. Maybe patience is in order?

Here are some snippets showing the 1962 and 1987 SP500 declines: