Taking Stock

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Tony Crowell
Tony Crowell

Some Favorite Things For Thanksgiving

Stocks are finishing the month of November on an upswing that market history indicates will persist through the year-end. In September and early October, the stock market experienced its first “correction” in two years. Since that dip, stocks have bounced back with vigor, gaining 11% since the October 15 low.

After this bounce, it would have been natural for the market to slide back during the first three weeks of November. Even though the last two months of the year are seasonally strong, November often slides back. Recently, in 2010, 2011 and 2012, stocks declined -4%, -10% and -6%, respectively, although they then quickly recovered.

Now that November passed without hiccups, a correction over the next few weeks is unlikely. At some point next year, stocks will probably suffer a real “correction” of 20% or more, probably accompanied by higher interest rates, but it looks like clear sailing into 2015.

December has been historically strong. Since 1949, the market was ahead 49 out of the last 64 Decembers. This performance is even stronger for the more recent time period beginning in 1987, when the Federal Reserve began increasing involvement in the stock market. Since then, stocks have gained 23 out of the past 27 Decembers, averaging a 2.1% gain.

Even if stocks were to stumble, the downside is likely to be light in this historically strong season. There are troubling markets abroad but stocks here are picking up momentum from a revised third quarter GDP report showing the U.S. economy gaining 3.9%. Adding the second quarter brings the total bounce after a depressed first quarter to 4.3%, the best showing in two consecutive quarters since 2003.

We could use more company. Japan slid into recession and Europe is barely avoiding the same fate. Most U.S. companies are reporting declining sales in Europe, with particular weakness in DuPont, McDonald’s and Coca-Cola. Among the 30 blue chips that make up the Dow Industrials, a single company reported its fifth straight quarter of increasing sales in Europe.

This bright spot is Nike (NKE-$87), which reported 32% sales growth in Europe for the quarter. Nike is the world’s largest sporting goods company with unstoppable media exposure. Sunday night, New York Giants wide receiver Odell Beckham made a one-handed touchdown grab that many called the greatest catch in football history. A Nike endorser, the films show Beckham wearing Nike gloves with a prominent trademark “swoosh.” Nike’s Twitter account includes a photo of the remarkable catch with a link to its site offering these gloves with the logos of the 32 NFL teams.

Nike reports its November quarter earnings on December 17 with a 21% gain expected. Its stock goes ex-dividend on December 11 with a recently increased $.28 dividend.

Like other consumer stocks, Nike should do well in view of early estimates of a 4.1% increase in overall expected retail seasonal sales, up from 3.1% last year. That doesn’t seem to be as much of an increase as I would have expected, however, the consumer confidence index dropped this month to its lowest level since June. Many still find the job market discouraging but lower gas prices will encourage consumers.

Predicting the future of energy prices is a fruitless pursuit, as is guessing at future stock prices. In both cases, my strategy is to weigh all available factors and make decisions for present actions based on calculations of risk vs. reward.

Oil prices are down sharply largely due to decreasing global demand and to our stronger dollar. OPEC is meeting Thursday, probably to ease production, and a predicted cold winter would pressure heating oil prices this winter. Meanwhile, lower prices at the gas pumps are boosting retail sales.

That’s good news for Nike, Simon Property Group (SPG-$180), FedEx (FDX-$174) and Apple (AAPL-$118), which has become both a consumer and a technology leader. Ten years ago, its market cap was $13 billion. It’s $700 billion now. Favorite things like Apple add to our blessings. Happy Thanksgiving!

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622





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