💰 5 Fact Friday: The Shocking Truth About Market Timing

MARKETS
1. The Santa Signal 🚦

Last week, we mentioned how the Fed played Grinch to our beloved Santa Rally. But what exactly is this festive rally, and where does the lore come from?

First observed in 1972 by market historian Yale Hirsch, the Santa Claus Rally typically unfolds over the last five trading days of December and the first two of January.

During this seven-session stretch, the S&P 500 has historically climbed about 1.3%—well above its average seven-day return of 0.3%. Plus, it finishes in the green more often than any other 7-day period of the year (roughly 80% of the time). 

Why might this happen?

• Lower trading volumes as institutional desks scale back for the holidays

• Seasonal optimism (yes, holiday cheer may influence trading decisions)

• Limited economic data in late December to rattle the market

The flip side? Hirsch’s research suggests that if Santa doesn’t show up, it may signal broader market trouble for the new year. In the past, failed rallies have occasionally foreshadowed major downturns (think 1999 and 2007).

As of today, we’re about one-third of the way through that window—right in the thick of the holiday shuffle.

If investors keep the sleigh on track, we could see a final burst of stock gains before 2025. If not, fasten your seat belts, because Santa’s absence can mean a bumpier January.

For now, consider these seven trading days a mini test of market sentiment. If you spot rally reindeer, it might make for a cheerful end to the year. If those reindeer go missing, don’t say we didn’t warn you!

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REAL ESTATE
2. Rethinking The American Dream 🏠

They say owning a home is the American Dream. But a growing group of people—including some millionaires—are ditching that dream and loving the renter lifestyle.

Why? Let’s break down the new math of housing:

1. Soaring costs beyond the mortgage: Across the country, homeowners are shelling out record-high property taxes and insurance. In September, those costs made up 32% of the average mortgage payment. In cities like Syracuse and Rochester, that figure can top half the monthly bill.

2. Freedom from maintenance nightmares: All that lawn-mowing, pipe-fixing, and storm-proofing eats time (and dollars). Many millionaires have found it’s easier to let the landlord handle the gutter leaks and faulty furnaces.

3. Flexibility matters: Jobs change, life happens, and nobody wants to be pinned down by a 30-year mortgage if they see themselves moving. When closing costs swallow 4-6% of your purchase price, owners often need to stay put for years just to break even.

And with so-called ‘starter homes’ in over 200 U.S. cities creeping toward seven-figure price tags, you have to ask: Is renting really so bad?

Some argue that real estate is the key to long-term wealth, but there are other (often more passive) ways to invest too.

The Takeaway

It might be time to rethink your housing strategy. If you’re not ready for five-plus years of ownership—or just hate the thought of middle-of-the-night plumbing disasters—renting can be a brilliant Plan A.

After all, in every major metro, it’s now cheaper to rent than to own. No wonder the average age of homebuyers is at a record high.

MARKETS
3. Expensive By Every Measure 🤔

Popular alarm bells are ringing and investors are beginning to question if the market’s valuations have gone a bit loco. With some metrics flashing red, it’s worth unpacking what they actually mean.

The Buffet Indicator

Warren Buffett’s favorite yardstick is the ratio of total stock market value to U.S. GDP (or GNP, as he originally preferred). At its core, it measures whether the market’s valuation aligns with the size of the economy.

But here’s the challenge: GDP doesn’t fully capture the global reach of American companies. As Apple sells more iPhones in China or Tesla ramps up its Berlin Gigafactory, U.S. firms are making bigger bucks abroad.

The numerator—market cap—jumps as these companies grow globally, but the denominator (GDP) remains tethered to domestic output. The result? The ratio looks inflated, even if actual value creation is borderless.

Shiller P/E Ratio

The Shiller or CAPE ratio (Cyclically Adjusted Price-to-Earnings) divides the S&P 500’s value by its average earnings over the past decade. It’s designed to smooth out earnings volatility and spot longer-term trends.

At over 38x, this ratio is well above its historical average, prompting some to say the market is expensive. But this assumes valuations eventually revert to “normal”—a point that’s heavily debated.

With fewer public companies to invest in and more dollars chasing them, valuations could remain elevated. Are they overvalued, or just more valuable compared to our alternatives? Perspective matters.

Forward P/E Ratio

Unlike the backward-looking Shiller ratio, the forward P/E ratio compares today’s prices to expected future earnings.

By historical standards, today’s 22x is sky-high—at levels seen only during the dot-com bubble and the pandemic boom.

However, this measure has not been a good predictor of performance. While you might expect high valuations to predict weak 1-year returns, the data shows no such correlation.

The Takeaway

Markets are undeniably expensive. The real question is whether these premium valuations are justified—or if they’re a bubble waiting to pop.

While there is reason to be concerned, it’s been a losing trade to bet against this market. No wonder Wall Street analysts expect another 10% rise next year.

STOCKS
4. Warren’s Winter Shopping Spree 🛍️

Warren Buffett put those “all-cash” rumors to rest this month—at least partly. He splashed over $560 million on new stock purchases, soothing fears that he’d gone into full-on doomsday prepper mode.

This spree came during a broad market pullback—classic Buffett. Here’s where the money went:

• Occidental Petroleum: $405 million, boosting Berkshire’s stake past 28%. With the stock down nearly 20% YTD, it’s practically a clearance sale.

• Sirius XM: $113 million, despite the satellite radio company facing a brutal 57% loss this year.

• VeriSign: $45 million in the tech stock, down just 2% YTD—a small nibble, but still worth noting.

Why Does This Matter?

For most of 2024, investors have watched Buffett hoard cash—selling over $30 billion in stocks last quarter while barely buying anything. Many worried he was bracing for an apocalyptic sell-off.

But Buffett isn’t completely inactive. He buys when he senses value, and this three-day shopping spree represents more than half of his Q3 purchases. While his moves don’t scream market-wide confidence, they highlight his conviction in three underperforming bets.

Buffett’s December activity is a yellow light for investors. It’s a reminder that even in an expensive market, there are pockets of opportunity. Still, it’s far from an all-clear. The Oracle of Omaha doesn’t sit on his hands without a reason.

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STOCKS
5. Guess That Stock 🕵️‍♂️

Think you can crack this week’s mystery? Here are five clues about a battered pharmacy giant that just caught a surprise tailwind.

1. Down 61% this year and 83% over five years, this neighborhood drugstore is now the S&P 500’s worst performer of 2024. Margin pressures, store closures, and online competition are taking a brutal toll.

2. Once a titan with a market cap over $100 billion, this 120-year-old company is now worth closer to $8 billion—a dramatic fall from grace.

3. Walmart’s free same-day prescription delivery and Amazon’s tech-driven strategies are shaking up the pharmacy landscape, leaving old-school players scrambling. Even its rival CVS is down 43% this year.

4. After struggling to expand into healthcare services, this chain is refocusing on its core pharmacy operations. Rumors of a buyout by Sycamore Partners could signal a major shake-up.

5. It’s not just a U.S. company—“Boots” is its iconic UK pharmacy chain. The 2014 merger with Alliance Boots created a global health and beauty retailer.

Got a guess? Tap here to reveal the answer → 

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