If you aren't betting on a big year-end market rally, you should be. The force is with you.
More to the point, the force is with the market. It's an extraordinarily powerful force that investors don't see, and the financial press isn't writing about.
But it's here, and it's gathering speed like a hurricane crossing the warm waters of the Atlantic.
You don't want to get out of the way of this force of nature; you want to ride it all the way to the bank.
Here's where it's coming from, how it will pick up speed, and where it can land you (if you're smart)…
The Market's Self-Fulfilling Prophecy
The most powerful force driving the stock market is always momentum. There's nothing stronger. Momentum can turn profit-taking into a sell-off, and turn that sell-off into a crash in just a few days or over months and quarters.
Fortunately, it works to the upside too.
In a very real way, momentum is self-fulfilling. As the stock market goes higher, it generates its own momentum as investors come off the sidelines and portfolio managers apply idle cash, as well as sell other asset class investments like bonds, and put them to work in stocks. That's been the case all year, propelling the market up more than 15%, so far.
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For lots of good reasons, I think buying momentum will pick up in November and December.
Portfolio managers of all stripes are measured against the market. Whether you're invested in mutual funds or hedge funds, you want to know how you made out at the end of the year compared to what the market did for the year. If the market's up 15%, you expect your funds to be up at least that. But really, you expect them to be up more than the market because you're paying for active management.
Of course, money managers are measured against industry benchmarks like the S&P 500. They know that if they aren't beating their benchmark, then they'd better load up on the big-name winners before year-end to both raise their performance and show investors that they owned highfliers, even if they didn't own them most of the year.
The year-end buying of stocks that have outperformed is called window dressing.
This year the big outperformers are a narrow group of stocks, led by technology stocks that include Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Netflix Inc. (Nasdaq: NFLX), and Alphabet Inc. (Nasdaq: GOOGL) – the FANG stocks – as well as Microsoft Inc. (Nasdaq: MSFT). Other big movers include Boeing Co. (NYSE: BA), Visa Inc. (NYSE: V), Caterpillar Inc. (NYSE: CAT), and UnitedHealth Group Inc. (NYSE: UNH), which are in the Dow Jones Industrial Average along with Apple and Microsoft.
Portfolio managers are going to be doing a lot of year-end window-dressing with these names.
But what makes this year so special is that the big movers are high-priced and huge capitalization stocks…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.