Scott Kahan: The Sky is Falling, Expect Another Santa Clause Rally
One day I read that the sky is falling, the next day I’m told to expect another Santa Clause rally… what gives?
Both could be true. We could have a stock market correction and a rally between now and the end of the year. Let’s look at daily market closes this year. The S&P 500 closed at 5868 on January 2 and hit s Q1 peak of 6144 on February 19. Donald Trump announced his tariff regimen on April 2 and by April 8, the S&P 500 dropped to 4982. That’s a 20% drop. Ten weeks later the market gained it all back and surpassed its previous 2025 high. Yesterday it closed at 6878.
The sky fell and then the sky rallied…
Yes, the best and worst of today’s market predictions can be true, and usually prove to be, when played out over time. If we could all see the future, we would know which prediction would bear out first and we could all make a killing in the market—coming and going. But we can’t. The lesson is don’t make investment decisions based on TV talking heads, opinion writers, or prognosticators.
Your clients must ask you the same questions…
We are having exactly these kinds of discussions now and have been all year. I tell them to separate their emotions from politics or market fluctuations from their investment decision.
Got back to the model…
Yes. We have a model we use with all our clients. It begins with setting financial goals long, short and intermediate and developing a financial plan to achieve them. The core of that plan, after setting aside cash for an emergency fund is developing an asset allocation strategy and then sticking to it.
Can you describe that for us?
We have many model portfolios our clients use but the one most referenced amongst financial planners is the 60/40 portfoli0. This is comprised of 60% equities and 40% fixed income which includes bonds and cash equivalents such as CDs, money market funds and Treasury Bills. As markets fluctuate the performance of side of your portfolio usually exceeds that of the other because stocks and bonds tend to perform inversely. When your asset allocation strays too far from your plan, say equities now are 65 or 70% of your portfolio—you sell stocks and buy bonds or move your profits into cash equivalents to restore your 60/40 desired balance.
How does this help resolve the sky is falling—no its isn’t?
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