Market Defies Historical Monthly Trends–Will Thrift Savings Plan Investors See a "Santa Claus" Rally in December?
The stock market is not following normal monthly trends.
As stock prices dropped in August, analysts warned the plunge would continue into September which is historically the worst month of the year for stocks. But the S&P 500 defied expectations and gained 8.8%, marking its best September performance since 1939.
The good news for investors continued in October, which is another seasonally weak month. (See TSP Stock Funds Continue Strong Performance As More Investors Participate in Lifecycle Funds)
But the market cooled off in November. Not that it was a bad month for those who are invested in the Thrift Savings Plan. The C fund edged up 0.01% and the S fund advanced by 3%. But the I fund dropped 4.84% and all of the lifecycle funds dropped in the month (See the monthly return rates for each month in 2010.)
December, on the other hand, is often one of the best months of the year for stock market prices. The Dow Jones Industrial Average kicked off December with its best day in three months, adding 249.76 points, or 2.27%. It was the Dow’s sixth-largest point and percentage gain this year. For TSP investors, the C fund jumped up about 50 cents per share in the first two days of the new month.
And, according to the Wall Street Journal, the December following midterm elections has been a good month for investors. Since 1945, the S&P 500 has gone up an average of 1.5% in December after a midterm election. And, for those who like to follow historical market trends, the stock market has averaged a 3.9% gain in the seven Decembers of a midterm election year in which the index also rose in September and October.
During October, TSP investors were apparently hoping for a profitable month in stocks in November. TSP investors moved about $1 billion out of fixed income funds and into stock funds. $757 million dollars was moved from the G fund and $187 million out of the F fund. Some of this money went into the I fund ($163 million) but the bulk of it went into the S fund ($470 million) and the lifecycle funds ($209 million).
Here is a quick summary of how the underlying TSP funds performed in November and so far in 2010:
So, no doubt, investors are hoping that this year will be no different than the historical trend which has proven profitable for stock investors after a mid-term election. But, keep this in mind: some analysts are warning about a major sell-off if Congress allows tax rates to rise on capital gains and dividends. As one analyst noted: “Capital gains tax rate will increase from 15 to 20 percent if the tax cuts are not extended. The last time the capital gains tax rate increased–on Jan. 1, 1987 from 20 to 28 percent–investors realized their gains at the lower tax rate.” (See Delaying Tax Vote Could Crash Stock Market)
So, in effect, we can’t predict what action Congress will take on taxes (if any) and, if it does take action, it could result in a negative impact on your stock investments in the Thrift Savings Plan–despite the favorable historical trends.
With this in mind, we wish all TSP investors the best of luck in making their financial decisions!