History Says Buy Stocks Now. Should You?

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Pained by the stock market? November could supply your medicine.

Wall Street is hoping that turning the page from October to November will jump-start a market that has been stalled since hitting a record high in August.

November kicks off what historically has been the best six months for stocks. Since 1950, the Dow Jones industrial average has posted average gains of 7.4% in the November-thru-April period, compared to a  0.4% return May-thru-October, The Stock Trader’s Almanac says.

The Dow has made little progress since first topping 18,000 in December 2014, but optimism is growing that November could be the start of something good.

“The seasonally bullish pattern has a better-than-average chance of playing out this year,” says Doug Ramsey, chief investment officer at Leuthold Group. Working in the market’s favor, he says, is a bullish signal from the firm’s Major Trend Index, which eyes key drivers such as valuation, economic trends, the mood of investors and market trading patterns.

And, Ramsey says, investors shouldn’t fret about what the Federal Reserve will do.

“A December rate hike is probably well (accounted for) in the market’s price right now,” he says.

It’s not just the calendar working in the market’s favor, business conditions are also improving, says Jim Paulsen, chief investment strategist, Wells Capital Management.

U.S. economic growth is re-accelerating after the first half of 2016 when gross domestic product, averaged just 1%. Paulsen expects “3%-ish” GDP growth in the next few quarters. Friday, the government said the economy grew 2.9% in the third quarter. Additional drivers: the likely end to the recession in U.S. corporate profit growth as evidenced by improving earnings reports from companies and a recovery in global growth thanks to fiscal stimulus supplied by central bankers.

Not everyone is convinced November will rid the market of its blahs.

David Santschi, CEO of TrimTabs Investment Research,  is positioning his firm’s model stock portfolio “defensively.” The portfolio now calls for a 100% cash position, which suggests there’s little upside for stocks.

What worries Santschi is the pace of corporate stock buybacks — a key source of demand for stocks — slowed in October. Through Oct. 25, companies announced plans to buy back $11.3 billion of their own stock, TrimTabs data show, well below the $60 billion in September and half the $22 billion in buybacks in August. Buying by top executives is also down this month.

“There are plenty of cautionary signs,” Santschi says. “When we look at what companies are doing, it is not what we want to see.”

Another caveat comes from Ari Wald, a technical analyst at Oppenheimer. While November is normally bullish, since 1928 the broad Standard & Poor’s 500 index has fallen 0.7%, on average, in November in election years when an incumbent isn’t running for president.

“We’ve found this (seasonal) strength is often pushed back into December during an election year when there is the added risk of a new presidential administration,” Wald says.

But that could set investors up for a strong finish to the year.

The December rally in years when no incumbent is running for the White House, however, is stronger than normal election years, with average gains of 1.8%, versus a 1.1% in all election years, according to Wald.