"The Santa Clause Effect" Article by Steve Marsten

This is the time of the year we talk about goodwill to all men and we let our budgets head into deficit a little to make sure our children and partners and extended family receive beautiful gifts and we have the roast turkeys, hams and pork all on the one day. So no one is thinking about stock markets, property markets or the economy too much.

The stock market has a history of going up in December.  It’s often referred to as the Santa Claus effect. This year is no different. The market has done quite well during the month going up 5% over the past month.

Most western economies have regular patterns to them and there is a model known as the Economic Clock. The Economic Clock demonstrates that - as an economy moves through its economic cycle, there is a time to buy certain types of investments and a possible time not to buy. It’s not a signal about what to buy to become quickly rich rather it identifies that the return to a specific type of investment. Currently it shows Australia’s economy crawling out from the bottom of the market – a hesitant uneven economy; interest rates falling and property stabilising. It’s just after 6 o’clock – heading towards 7! THIS is the start of the potential bull market.

 Over the past 12 months the US market has performed considerably better then the Australian market. The difference is that the US government is not trying for a surplus. They run the world’s largest deficit and will increase spending in another “quantitative easing” likely in the New Year. This stimulates their economy. Our economy has not had this luxury and hence our market is subdued. Nevertheless, we are building a strong economic footing for the nation. Also for the faint hearted it may take some time before they will jump into market given that, to them, it may be still considered iffy! However the signs are there. That’s not to say the market won’t fluctuate – of course it will, however the trends are looking up.

So eat, drink and be merry this Xmas but save a little something to start the wealth building in the New Year and see your investment advisor as soon as you possibly can in the new year to take advantage of what looks to be a good market year.  From the team at Sothertons – Merry Christmas and Happy New Year!