Wall Street traders Christmas break – 2020 forecast
WASHINGTON –US stock markets closed early Tuesday afternoon for their annual Christmas Eve-Christmas Day break. As expected, trading proved light, and major averages closed mixed. Quite simply, ’twas the day before Christmas and Wall Street traders took a break. The Dow and the S&P 500 closed off a bit, while the tech-heavy NASDAQ eked out a slight gain. Trading should carry on this way, more or less, until the old year passes.
Wall Street action on the day before Christmas
Speaking of that Day Before Christmas passage, Reuters had some interesting observations, as captured on CNBC earlier today.
“As investors celebrate the outsized gains they made in the stock market in 2019, they may be getting ready to sell some of their winners once 2020 begins.
“There’s little to stand in the way of the rising stock market at this point as it drifts, higher, for the most part, into year-end. But come January, analysts say, there should be some tax-related selling, and the broader market may even pull back, after its heady 2019 gains.
“‘I think people won’t want to add any more taxable gains this year, so they’ll probably defer to next year. They made a lot of money. A lot of them will tend to look at rebalancing,’ said James Paulsen, chief investment strategist at Leuthold Group.”
That’s an interesting remark, as December often proves to be THE month for tax-loss selling. Or at least it used to be. In fact, if we saw any tax loss selling this month thus far, it would have been during the first few wobbly trading days of December when stocks backtracked, as if to question its own run of irrational exuberance.
The Reuters / CNBC piece continues.
“Even if there’s a January pullback, analysts expect the stock market to keep rising.
“The S&P 500 has gained 8.3% in the final quarter of the year and was up 28.6% for the year so far, its best performance since 2013. If the S&P gains more than 29.6% for the year, that would be the biggest gain since 1997′s 31% gain.
“‘I suspect we’re going to cool the jets of bullishness in the first quarter. … It wouldn’t surprise me if we had a pullback,’ said Paulsen, adding that investors have become a little too bullish.”
Describing the so-called ‘January break’
“Jeffrey Hirsch, editor-in-chief of Stock Trader’s Almanac said it wouldn’t be surprising to see investors taking profits at the start of the new year. ‘That’s what gives a little bit of weakness on day one. We’ve seen a bit of profit-taking on the first trading day of January when people don’t want to incur capital gains’ in December, he said. ‘There’s been more of that going on in January. There’s also the traditional January break.’”
All in all, this is what I’ve worried about a bit over the last few weeks of this fast-concluding year. At times at breakneck speed, Mr Market sped ahead this year, particularly in the rowdy current calendar quarter, posting new record highs on one or more of the major averages at least once or twice a week if not more. When things get too frothy, they generally correct.
But with many investors carrying nice gains into the December close, most of them – at least the bulls – felt nice and fuzzy about booking them after the end of this year rather than incurring a big tax bit by dumping them for a profit on, say, December 31. After all, since capital gains aren’t taxed until you actually book them by selling your profitable positions, why not wait until the calendar turns, selling them in January. Better to take fresh chances in 2020 rather than getting taxed for sure on those gains right now.
So indeed, we may very well see a nasty market turn in January, with a nasty selling squall to book many fat 2019 gains in 2020, not this year. Maybe this day before Christmas was just a tiny preview of Scroogery Yet To Come. But profit-taking happens from time to time, which is not a bad thing.
Real or imaginary, fears loom on the January 2020 horizon
Furthermore, we still look forward to potential market chaos in January. The mood of traders could change in an instant. For example, if China reneges (as it often does) on its latest trade pact promises. Or if the House Democrats continue to screw the pooch with their fake impeachment. Even now, they seem eager to open the door to even more bogus charges. Plus amending their beyond-weak pair of impeachment articles they’re already afraid to send to the Senate.
On the other hand, markets and traders have learned to distrust those sneaky, totalitarian Chi-coms. (Even as House Democrats seek to emulate their methods and results.) As for “impeachment lite,” traders and investors are adjusting to the fact that the House Dems likely intend to keep throwing enough fake scheisseup against the wall to keep the #NeverTrump, #OrangeManBad press in a negative PR lather right up to Election Day 2020. And by “adjusting,” I mean pretty much ignoring all that sound and fury signaling nothing. Amateur hour does get tedious after continuously repeating the same failed re-run.
But one never knows. After the calendar turns, moving on from this day before Christmas and the holidays themselves, something else might hit voters and investors’ fantasies, negative or otherwise.
In the meantime, we have to decide how many of our 2019 profitable positions we should sell, just taking the money and running. And how many of those profitable positions we should keep in place, letting them ride into 2020 even as we strongly suspect they’ll get hammered for a couple of weeks.
Guess we’ll just wait and see.
Meanwhile, let’s just take a break. And enjoy a Merry and Blessed Christmas with our friends and family. And forget about the Almightly Dollar for at least one single day in the year.
Merry Christmas to all!
– Headline image: Christmas decorations on Wall Street, circa 2007. Image by Ciar, released into the public domain and appearing in Wikimedia commons under “Christmas decorations on Wall Street.”