by READ MEADOWS

“I really can’t stay—Baby it’s cold outside / I’ve got to go away – Baby it’s cold outside…” – Frank Loesser

Frank Loesser’s 1944 Christmas song speaks to many investors’ sentiment of feeling like you’ve been “left out in the cold,” and wanting to “go away” from the stock market by moving your money to cash. This has been a recurring theme with our clients since the 2008 financial crisis, and I can’t say I completely fault them. Add this to the uncertainties from the recent election and looming fiscal cliff, and “room for concern” is an understatement. As an investment manager I am not tasked with solving these problems (thankfully), but helping our clients navigate the environment they create. Fortunately, it is not all bad news. Here are some insights into what is happening.

TAILWINDS FOR THE MARKET

1 Seasonally Strong Returns – According to the Stock Trader’s Almanac, the stock market tends to perform far better in the six month period from November to April versus May to October. Since 1950, $10,000 invested in the Dow Jones Industrial Average during the weak six months would only be worth $8,976. The same money invested in the Dow Jones Industrial Average during the best six months would be worth $674,073! (That was not a typo, but don’t be confused: it does not mean positive returns are impossible in the bad six months and negative returns impossible in the good six months.) This month is no exception says Jeff Saut, Raymond James Chief Investment Strategist, “December has been the best performing month of the year over the past 100 years with positive returns 73% of the time.” Chief Market Technician Art Huprich says that according to the book titled, The Little Book of Stock Market Cycles, (authored by the same gentleman who wrote The Stock Trader’s Almanac,) “December is the number-two month on the Dow Jones Industrials and number one on the S&P 500 since 1950…The Dow and the S&P 500 start the month off slower and do not become undeniably bullish until the third trading day. But, on the fourth trading day becomes more guarded and remains so through the first half of the month as tax-selling wraps up. It is not until the middle of the week after December ‘Triple- Witching Week’ that stocks begin to rise consistently on the majority of days.”

2 Market Backstop – With Obama’s reelection, Ben Bernanke is likely to remain the Fed chairman. This means his policies of exceptionally low interest rates via “Quantitative Easing” or “QE” as you probably have heard it called, will likely continue. Whether the policy’s merit is good, bad, or indifferent the stock market’s trend has an upward bias in the months following more “QE.” (The third round was enacted in September.)

HEADWINDS FOR THE MARKET

1 The Fiscal Cliff – Lots of ink has been spilled on this subject, so I will only mention the high points. First off, “It’s not really a ‘cliff’—the economy won’t grind to a halt on January 1. Washington has several weeks in 2013 to work out a deal without a major impact on the economy,” says Scott Brown, PhD, Chief Economist for Raymond James. More than likely, a deal will be struck. Politicians can’t help but think about re-election, and they don’t want to be the ones blamed for a recession if the fiscal cliff’s full effects are not curtailed. The question is really when, not if the deal will be hammered out. Sooner would obviously be better because it would reduce “uncertainty,” and remember, the stock market hates uncertainty. When a compromise is reached, look for GDP growth to be around 2% in 2013—mostly in the second half of the year.

2 Europe – The much maligned debt crises across the EU countries will continue to add uncertainty to the global markets.

So as an investor, what do you do from here? Don’t be surprised to see volatility creep up in the coming months. This usually leads to investor’s blood pressure moving up in tandem, but remain calm and use wide price swings to your advantage (buy good stocks cheaply and exit bad stocks on rallies.) Gold has entered a seasonally strong period from the beginning of November to the end of February, just be careful how you own it. Lastly, Raymond James’ Chief Investment Strategist, Jeff Saut, made a statement in a press release prior to the election about the market sectors that tend to perform well under Republican or Democratic White Houses. Since we have the latter, “A Democratic Presidential win should favor the following: Consumer Discretionary, Infrastructure, Clean Energy, Internet, Communications, and Muni Bonds.”

The holidays are in full swing. We are surrounded by the craziness of shopping, cooking, stock market volatility, and scrambling in Washington. Despite all of this, enjoy the time you are able to spend with your family and never forget, “For unto us a child is born, to us a son is given; and the government shall be upon his shoulder, and His name shall be called Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace” (Isaiah 9:6). Merry Christmas!

Read Meadows is a Financial Advisor with Raymond James Financial Services located in Jackson. He and his wife Elizabeth live in Madison. To contact him, call 601-321-2090 or email Read.Meadows@RaymondJames.com.