Mr. Market (SPY) may be moody, but he is also quite predictable at this time of year. I am talking about getting ready for the Santa Claus rally that is one of the most profitable stretches for investors year in and year out. And this year we have the perfect strategy to add a little more ho, ho, ho to your holiday season. Read the rest below.
Warren Buffett likes to talk about “Moody Mr. Market” and that investors need to learn how to take advantage of the wild mood swings rather than become a victim of them.
Another thing about Moody Mr. Market is that he tends to act differently at various times of the year. And over time, he has developed some fairly consistent patterns. This means that certain strategies have a higher probability of success when these seasonal trends are in your favor.
It’s The Most Wonderful Time Of The Year…
The best example of this phenomenon is the Santa Claus rally in which stocks outperform at the end of Q4 and start of Q1. Since 1950, this short window has been positive 77% of the time, which ranks it as the No. 1 stretch of seven trading days for stock investing.
Even though the market has recently faced selling pressure following December’s rate hike, a year-end Santa Claus rally certainly isn’t out of the question.
If we’ve learned anything this year, it’s that Moody Mr. Market is as moody as ever.
Following each of the Federal Reserve’s rate increases in 2022, we’ve seen an initial drop followed by a substantial upswing.
Indeed it does seem to be rounding into form just like clockwork this year. We had our last rate hike of the year, followed by a market drop, which means we should have a positive bump in our near future.
That is why I want to share with you the perfect strategy to make the most of this upcoming Santa Claus Rally.
The Right Strategy
The best way to take advantage of these bullish factors is to buy two categories of stocks that these fund managers will prioritize: momentum and deep value.
Momentum stocks are typically companies with accelerating sales and earnings that lead to major share price outperformance. These especially stand out in bearish markets like 2022 as so many other firms are displaying weak results.
Especially in our current economic climate, people are going to be looking for stocks that are still managing to outperform.
On the other end of the spectrum, deep value stocks are ones that have been ignored or forgotten by the market. They are deeply oversold and have very low valuations.
Like a dry tinder box, this means that any sort of spark can send shares rocketing higher. And that spark is often investors focused in Q4 on greatly undervalued stocks that have tremendous promise in the year ahead.
Focus On Stocks Under $10
If you agree that these two categories have the most upside into year-end, then you should consider focusing on low-priced stocks under $10.
Low-priced stocks have the most upside in any part of the market and benefit the most from a bullish environment. Additionally, most low-priced stocks either fall into the deep value or momentum categories explained above.
This universe of stocks always offers an incredible opportunity to savvy investors, but that will be even more true this year if we will have a powerful wind at our backs due to bullish Q4 seasonality and the Santa Claus rally.
Earlier, we talked about Mr. Market and how we should take advantage of his mood swings. Well, these stocks under $10 are the best place to find gems that have been unfairly tarnished by Mr. Market’s earlier mood swings, yet ready to shine at this unique time of year.
What To Do Next?
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Chief Growth Strategist
Editor of the POWR Stocks Under $10 Newsletter
SPY shares were trading at $382.29 per share on Friday morning, down $7.34 (-1.88%). Year-to-date, SPY has declined -18.58%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Meredith Margrave
Meredith Margrave has been a noted financial expert and market commentator for the past two decades. She is currently the Editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.