WikiLeak: Bipartisan Support for Santa

Eric Linser, CFA | Dec. 17, 2010

Yes, Virginia there is a Santa Claus. He may not be as chubby as in years past and the white beard is from stress, but like clockwork, he won't miss his appointed rounds. Santa will again reward good boys and girls.

And let's not forget investors. Santa is rewarding them too, with favorable domestic and global stock market gains for the year. We have all the right conditions for a Santa Rally (technically the week between Christmas and New Years, but often applied to historically the best month of the year - December). And, it appears that the gift giving won't end at the stroke of midnight on the 31^st.

I suspect that we'll push through the recent highs of 11,500 on the Dow and perhaps tack on another 2-3% by the end of the month/year. That would equate to a 13-15% return on the year for the S&P 500 and the Dow, and closer to a 20%+ return for Nasdaq. Not bad, especially given that we were under 10,000 on the Dow in August. For Green Valley's results so far this year, click here for our global "Owl" stock strategy and click here for our US "Eagle" stock strategy on the Wealthfront investment platform.

S&P 500 index chart | Jan. 4 - Nov. 30, 2010

As the S&P 500 chart above shows, 2010 has been another year of volatility, both in terms of political and economic news and in stock market performance. We've had two market rallies that would make any investor happy -- if they weren't sandwiched around a near official (20% decline) bear market. As of December 16th, the S&P 500 is up 11.5% year-to-date, the Dow is up 10.3% and the Nasdaq is up 19.3%.

After some post-election profit taking in November, investors again became bullish after digesting their Thanksgiving meal. The S&P 500 lit up ~ 3% in the first few days of December as if it was a Menorah. Investors were correct in anticipating a Republican takeover of the House and net gains in the Senate and the markets are now set to move higher given the extension of the Bush tax cuts, providing some certainty to the federal tax regime for the next couple of years.

Looking out to 2011, US and international stocks alike should move higher as consumer confidence and economic growth improve. Sure there will be uncertainty, but the fact remains that the economy is getting healthier and corporate earnings are on the rise. These are the two greatest predictors of future share price performance and both are singing in unison like the Vienna Boys' Choir that there are more gains ahead.

I'll write more indepthly on my outlook for 2011 shortly, but for now - enjoy the rally and pop open the bubbly!

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