mr. Market (SPY) may be moody, but it’s also quite predictable this time of year. I’m talking about the preparations for the Santa Claus rally, which is one of the most profitable stretches for investors year after year. And this year, we’ve got the perfect strategy for adding a little more ho, ho, ho to your holiday season. Read the rest below.
Warren Buffett likes to talk about “Moody Mr. Marketand that investors need to learn how to take advantage of the wild mood swings rather than fall victim to them.
Another thing about Moody Mr. Market is that he tends to behave differently at different times of the year. And over time, he’s developed some fairly consistent patterns. This means that certain strategies are more likely to succeed 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 equities outperformed at the end of the fourth quarter and the beginning of the first quarter. Since 1950, this short window has been positive 77% of the time, ranking it as the number 1 stretch of seven trading days for stock investing.
Even though the market has recently faced selling pressure following the interest rate hike in December, a Santa Claus year-end rally is certainly not out of the question.
If we’ve learned anything this year, it’s that Moody Mr. Market is as moody as ever.
After each Federal Reserve rate hike in 2022, we have seen an initial decline, followed by a substantial rebound.
It does seem to be going smoothly this year. We had our last rate hike of the year, followed by a market decline, which means we should have a positive increase in the near future.
That’s why I want to share with you the perfect strategy to get the most out of this upcoming Santa Claus Rally.
The right strategy
The best way to take advantage of these bullish factors is to buy two classes of stocks that these fund managers will prioritize: momentum and deep value.
Momentum stocks are typically companies with rising sales and earnings leading to significant share price outperformance. These are especially noticeable in bearish markets like 2022, as so many other companies are showing weak results.
Especially in our current economic climate, people will look for stocks that are still doing well.
At the other end of the spectrum, the high value stocks are those that have been ignored or forgotten by the market. They are heavily oversold and have very low valuations.
Like a dry tinderbox, it means any kind of spark can skyrocket stocks. And that spark is often when investors focus in the fourth quarter on highly undervalued stocks that hold tremendous promise for the year ahead.
Focus on stocks under $10
If you agree that these two categories have the most upside at the end of the year, then you should consider focusing on low-priced stocks under $10.
This is why…
Low-priced stocks have the most advantage in every part of the market and benefit the most from a bullish environment. In addition, most low-priced stocks fall into the deep value or momentum categories described above.
This universe of stocks always presents an incredible opportunity for savvy investors, but it will be even more so this year when we have a strong tailwind from the rising seasonality in the fourth quarter and the Santa Claus rally.
Earlier we talked about Mr. Market and how to take advantage of his mood swings. Well, these under $10 stocks are the best place to find gems that have been unfairly tarnished by Mr. Market, but ready to shine at this unique time of year.
What to do now?
Discover the best stocks under $10. That’s easy to do by starting a 30-day trial for our POWR shares under $10 newsletter.
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Good trade!
Meredith Margrave
Chief growth strategist
Editor of the POWR Newsletter Stocks Under $10
SPY shares traded at $382.29 per share on Friday morning, down $7.34 (-1.88%). Year-to-date, SPY is down -18.58% versus a percentage increase in the benchmark S&P 500 index over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth and POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.
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