The market has been acting much as our friends at GaveKal have discussed as prices have “melted up” here in Q4. Fundamentally prospects for better business momentum in 2010 are good and valuations on many stocks we follow still offer reasonable upside.
As we enter the final few days I expect self-interest among many investment managers will push prices toward the best possible “market to market” at the close on December 31st. With volume light it will be easier to lift prices with concerted buying than usual. 2009 returns should allow many investment managers to post a strong annual return and pocket nice performance-based fees for the first time in a while. It’s also an ideal time to be getting a cash performance bonus as many popular asset classes like real estate are attractive if you have cash.
However after December 31st the motivation for pushing prices higher to maximize current compensation will evaporate and be replaced with speculation about Q4 reports and 2010 guidance updates later in the month. If true it argues for a little pull-back in prices with the first trading day in 2010 and into January depending on likely guidance versus expectations for 2010. (R2 will compile and publish our spreadsheet on that by mid-month.)
On the flip side tax-loss selling also applies to the few names that have lost a great deal of value in 2009, especially given the triple digit gains in so many stocks. In some cases this will push share prices down to levels where I’d add or own shares for a bounce in January.
I’d never pretend to know what the market is going to do in the short term but starting with a scenario helps to manage positions and exposure of a long-term portfolio.
No matter what happens in the last week I think Champagne sales will be healthier this year than last…