Christmas Eve is a time of peace and joy as Christians celebrate the birth of Christ, and children of all ages anxiously await the arrival of Santa Claus. It’s a wonderful time to spread good cheer.
Pre-holiday trading days are usually benign as traders and investors leave their computers and trading desks to spend time with friends and families. Volume and trading activity are light, and savvy traders can take advantage of price swings to profit as markets usually rise the day before a holiday.
However, trading on Christmas Eve last year was a nightmare. The Dow Jones fell 1,462 points, or 6.3%, from the high on December 21 to the low on Christmas Eve, a brutal day for all. The dropped capped off a terrible fourth quarter, as the Dow Fell 12.5%. Investors were worried about rising interest rates and an escalating trade war.
During the fourth quarter, investors panicked and removed $183 billion in assets from mutual funds. They ran for cover, looking for safety in money markets and U.S. Treasury investments. The long-term U.S. Treasury ETF (TLT) rose 4.6% during the equity assault.
Market strategists were not optimistic about equities in 2019. Bank of America Merrill Lynch “…urges investors not to overlook the potential attraction of cash.” Morgan Stanley was calling for “an outright earnings recession.”
What happened since the Christmas Eve drubbing? Were investors wise to sell stocks? Was cash the answer? Let’s look.
From Christmas Eve of 2018, the Dow Jones has risen 31.05%. Not to be outdone, the NASDAQ rose 44.3%, the S&P 500 added 37.2%. Staggering returns.
When markets swoon, don’t panic. Fear is never beneficial for the long-term investor. If the market is cratering, do nothing. Wait for the storm to pass before you make any financial decision. Markets always recover.
If you’re a long-term investor, buy the dip. Use a market drop to add to your equity holdings. Look for quality stocks to put in your stockings as you’ll be rewarded with an excellent gift when stocks recover.
If you’re concerned about a market drop, buy bonds. Bonds perform well when stocks fall.
2019 has been an excellent year for investors as every major asset class is in positive territory. As we close out the year, and the decade, follow your plan, celebrate your success, and enjoy the holidays.
“Happy Christmas to all, and to all a good night!” ~ A Visit from St. Nicholas, by Clement Clarke Moore
December 24, 2019
Bill Parrott, CFP®, CKA®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
 https://school.stockcharts.com/doku.php?id=trading_strategies:the_pre-holiday_effect, website accessed 12/23/2019
 https://www.forbes.com/sites/johntobey/2018/12/16/barrons-2019-outlook-professionals-sense-recession-risk/#c75cb9239d85, John S. Tobey, December 16, 2018.