Market Leadership & Santa Claus

Market Leadership & Santa Claus

Posted on December 27, 2021
If you hadn’t been paying attention to the markets for the last month, and checked where they stood today, there wouldn’t have been much change.  However, the markets have fluctuated significantly over the past month.  Going back 1 month from Thursday’s close, the S&P 500 is at the same point as it was on November 22nd but has experienced 12 trading days (out of 22) beyond +/-1.00% since then.  In the 1-month period prior, the S&P 500 did not experience a single day beyond +/-1.00%.  Volatile days come in clusters.

What had been lulled to sleep, awoke.  That being said, the maximum peak-to-trough decline experienced didn’t even reach a normal pullback of -5%.  So, the market experienced 12 days beyond +/-1.00%, with the worst day being -2.25% without even so much as a normal pullback.  That is interesting.

While the markets current price may not have changed in the past 22 trading days (which is 1 month), its leadership certainly did.  On a risk-adjusted basis, we saw movement in technology-related sectors, which fell in ranking, and a rise out of the more traditional “defensive” sectors.
Sector Current Rank Rank 1-Month Ago Net Change
Health Care 1 4 +3
Utilities 2 6 +4
Real Estate 3 3 0
Staples 4 7 +3
Info Tech 5 2 -3
Discretionary 6 1 -5
Basic Materials 7 5 -2
Financials 8 9 +1
Energy 9 10 +1
Industrials 10 8 -2
Communications 11 11 0
Source: Canterbury Investment Management

Over the last month, Information Technology and Consumer Discretionary have each fallen down our risk-adjusted rankings.  Technology-related sectors have seen more volatility than sectors like Health Care and Utilities, causing a rotation.  As a whole, the Communications sector continues to struggle, outside of its largest component, Google.  Google is down -3% from its 52-week (1-year) high, while the average communications stock is off by -23%.

Is Santa Claus Comin’ To Town?
Whenever we get to the end of the year, the news likes to start talking about retail sales numbers in hopes that retail stocks climb with strong Christmas and holiday season sales.  While the markets are higher, many stocks in the retail sector of the markets are not.  In fact, many are much lower.  This is somewhat reflected with the fall of Discretionary sector in Canterbury’s risk-adjusted sector rankings.  Keep in mind that the Discretionary sector is heavily favored towards Amazon and Tesla.  Amazon, which is a tech-related stock that deals in the retail space, is down -9% since its mid-November high.  What about other retail stocks?

Looking at the retail segment of the markets, ranging from Amazon and large brick and mortar stores like Macy’s, Dick’s Sporting Goods, and Best Buy, to smaller outlets such as Bath & Body Works, Gap, Kohl’s, and Shoe Carnival, retail shops have not necessarily seen Santa shop at their stores, or least buy their stocks. 

The average “Retail Trade” stock, as defined using retail sector ETF holdings and Optuma software sector categories, is down -29% from its 52-week high.  Looks like some shareholders got a big lump of coal for Christmas.

Bottom Line
If you are not familiar with the term “Santa Claus Rally,” it refers to historical trend of the markets having a strong end of December and first few days of January.  As we begin the last week of December, the S&P 500 is up more than 1% today (at the time of writing on Monday).  At least in the short-term, this is a good sign for the markets.  This move has caused the S&P 500 to break above short-term resistance and would put the S&P 500 up a little less than 5% in just the last 4 trading days.  That is quite the move in a short period of time.  Breaking above short-term resistance is positive, and given the market’s history, we would expect at least the very short-term to be positive in the markets.

We all know that making predictions about the future is difficult, particularly in markets.  We do not know what the markets will do next month, the next 6 months, or next year, but we do find it interesting that there has been a short-term reversal away from the more “offensive” sectors and into the more “defensive” sectors.  It remains to be seen whether or not this trend will continue, but our portfolio has adjusted accordingly.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.