What Christmas Music Means for Your Portfolio

Matthew Carr
by Matthew Carr, Emerging Trends Strategist, The Oxford Club
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I’ll admit, I don’t know how many Christmas songs have been written throughout history. But I assume it must be more than the half-dozen played continuously.

And recent studies have shown that nonstop Christmas music can cause people psychological harm.

Especially when retailers put “Jingle Bells,” “Here Comes Santa Claus” and “I’m Dreaming of a White Christmas” on repeat... starting in October.

Best Buy (NYSE: BBY), Ulta Beauty (Nasdaq: ULTA), Sears (Nasdaq: SHLD) and Michaels (Nasdaq: MIK) are just a few chains guilty of such a crime.

Christmas music can irritate people by reminding them of everything that needs to be done before the holidays.

Plus, if you’re an employee at one of these retailers, caught in the endless Christmas music loop day in, day out, you’re bound to be mentally scarred.

But investors should start to love Christmas music... that is, if they don’t already.

It’s the harbinger of an annual holiday shopping blitz that fuels the markets through the end of the year.

Now, the markets have already had a solid year...

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Despite the recent post-tax-bill blues, the Nasdaq is leading the pack, up 24% year to date. The Dow Jones Industrial Average is up 22%, and the S&P 500 is putting up a solid 16.5% performance.

But the final three months of the year are often when the biggest moves happen.

Summer Lulls and Winter Winnings

In fact, the fourth quarter is typically the best stretch of the year. And that’s because beginning in October, we have all the major spending holidays on the horizon.

Just look at the average quarterly gain of the Dow since 2008...

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The slow-moving blue chips on the Dow have averaged a 3.79% gain in the fourth quarter over the last 10 years.

That’s more than double the Dow’s average performance in the third and first quarters. And as you can see, it’s several times the Dow’s performance during the second quarter “summer lull.”

Over the past five years, the Dow has closed out the year strong.

This year, since the start of October, the Dow is up nearly 8%. If the blue chip index doesn’t completely collapse between now and the end of the month, it’ll be the fourth year out of the past five that the Dow has gained more than 7% in the fourth quarter.

In other words, don’t bet against the markets in the fourth quarter. This trend is truly an investor’s best friend.

At the moment, the Dow is negative for December. But it began December with several straight days of record highs. And since 2008, the Dow has ended December lower than where it began only three other times.

The one outlier is the Nasdaq... the tech index is down more than 1% in December already. And it finished the month of December down more than 1% in two out of the past three years.

The tax bill has created havoc for tech in recent days. But it could also create an opportunity.

Starting the Year in the Red

I’ll take a moment to give my annual warning: Remember, January is one of the worst months of the year for stocks.

The data shows that investors need to use the month as a chance to buy the dip...

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Over the past 10 years, the Dow has ended the month of January lower six times. And all of those have been losses of at least 3.46%.

That means you should take a moment to sit back and rediscover the joy of holiday music - and all the gains it’s represented for your portfolio this year... particularly in the fourth quarter.

But also, start making a wish list - a post-Christmas list - of all the companies you want to snag during any broad market weakness we see in January.

Good investing,


Thoughts on this article? Leave a comment below.

A Prime System Play for the Holidays

Matthew’s Prime System Trader service exploits seasonal and cyclical trends - like the ones described above - to bring subscribers outsized profits.

It may not surprise you to hear that he has recently added several recommendations in anticipation of the holiday season. Children’s Place (Nasdaq: PLCE) is one of them. Here’s Matthew checking on the retailer last month...

The latest survey from the National Retail Federation (NRF) shows it should be a busier holiday season. Consumers are expected to increase spending 3.4% to an average of $967.13.

In total, the NRF is forecasting that holiday spending will increase 3.6% to 4% to between $678.8 billion and $682 billion.

During the summer, retailers imported goods at a record pace. In July and August, the number of TEUs (twenty-foot equivalent units) at ports set back-to-back records. And in August, the number was up 5.6% year over year.

The port deliveries in September and October were near those levels as well.

So the mood has shifted. And I think there are a bunch of attractive plays in the retail space now.

The first I have to offer is Children’s Place (Nasdaq: PLCE).

The company is the largest pure-play children’s apparel retailer in North America. It operates more than 1,000 stores in Canada, Puerto Rico and the U.S... not to mention its online store.

In the second quarter, the retailer experienced what has seemed like a rarity in the sector - a sales increase. Comparable store sales improved 3.1%, and net sales for the year are up 2.5% to $810.3 million.

Even better, Children’s Place’s main competitor, Gymboree, went broke. Gymboree liquidated 330 stores. In 216 of those locations, Children’s Place is right there. And since July 18, when Gymboree went under, Children’s Place has seen traffic and sales increase.

In the second quarter, the company raised full-year guidance on earnings per share. It now expects to earn $7.23 to $7.33... something we haven’t seen a lot of in the retail space.

For the third quarter, Wall Street is looking for revenue of $480.28 million. Then, in the fourth quarter, revenue is expected to surge to $541.63 million.

- Samuel Taube with Matthew Carr

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