Market Analysis: Dow Reaches 17,991; Nine Points From Our Year-End Target

18,000 on the Dow may not be reached this year, but we came very close to our target.  The Dow Jones Industrial Average reached 17,991 in early December.  Since that top, we have had a sharp correction of more than 800 points.  The current correction is very similar to the one we experienced in September of this year.   That correction was 9.8%.  It is possible we could experience a similar correction to September, before stocks start to see some footing.   Historically, December 20th – January 30th is a favorable time for stock investments.  This period is known as “the Santa Claus Rally” and the “January Effect”.  The Santa Claus rally is attributed to investors being generally in a good mood during the holidays and do not sell stocks at the end of the year.   January has been, on average, the best month historically in terms of gains for the stock market.

What about this year?  Will Santa come?  Will January be good?  The bullish side of me wants to say yes, especially with the price of oil.  However, many Americans are facing higher expenses in both health care and food costs, combined with stagnant incomes.  Unless fundamentals deteriorate in the next few months, though, I believe the 18,000 mark on the Dow has a favorable chance of being reached in the first quarter of 2015.  As for the remainder of 2014, I think the current correction is not yet over, and it should not subside until the end of December; therefore, Santa’s sleigh will most likely stay grounded.

January looks good for stocks; if it is not good, the market could be signaling a warning.  In January I will outline the various scenarios I see for 2015.  The DOW could possibly reach 20,000 next year.  However, there are pitfalls that we could encounter, so we are monitoring.  Bull markets, which we have been experiencing as investors since March 2009, usually end abruptly and at a time when not many people are expecting it.    I see no signs yet that the bull market is ending.  It is very mature in age, but every correction that the market has had the past 3 years has been followed by new highs.  The September correction of 9.8% was quickly reversed in late October, and the market had brand new highs on into November and December.  As long as this pattern continues, I am not concerned.

From everyone at IAP, we hope you have a happy and blessed Holiday season.