Tags: Arora | market | dip | month

MarketWatch's Arora: Any Dip in the Market Will 'Likely Be Shallow'

Friday, 06 Dec 2013 11:02 AM

By Michael Kling

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The Dow Jones Industrial Average and the Standard & Poor's 500 has sustained a string of down days since the month began, which many observers might see that as a worrisome pattern.

The emerging trend is particularly troubling because new money typically enters the stock market in the first few days of the month from pension funds, 401(k) plans and individuals investing on a monthly basis, Nigam Arora, chief investment officer at The Arora Report, writes in an article for MarketWatch.

Plus, stocks typically perform robustly in the first few days in December during bull markets, because money managers lagging indexes invest aggressively as the month starts, says Arora, an entrepreneur and author.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

But have no fear, he assures investors, saying the market enjoys "significant support" despite warning signs.

Tax implications are one major reason why the market won't crumble before the end of the year, he points out.

"If investors sell their winners in 2013, they will have to pay taxes this year. Sophisticated investors tend to engage in strategies to defer taxes."

And an uptick in purchases of derivatives for protection indicates that sophisticated players intend to hold onto their winners into 2014.

In addition, money managers who have lagged their benchmarks due to the skyrocketing market this year — and there are many of them — will probably buy on any dips.

"For the foregoing reasons, any dip in the market before the year end is likely to be shallow," Arora concludes.

Many investors see the potential withdrawal of the Federal Reserve's stimulus as the most important single factor impacting stocks. The economy added 203,000 jobs in November, exceeding expectations and reducing the unemployment rate from 7.3 to 7 percent, the Labor Department announced Friday.

However, the strong jobs report isn't strong enough to prompt the Fed to start tapering its $85 billion monthly stimulus right away, many economists believe.

"I think the Fed waits 'til March for several reasons. One, they want to make sure this is a trend and not a temporary increase in growth, and the reason the Fed will be nervous about that is because GDP is tracking below 2 percent for the fourth quarter," Moody's Analytics Chief Economist Mark Zandi tells CNBC

"I think they want to wait to see how the budget battles go in Washington, make sure lawmakers do not damage the economy. Inflation is very low . . . so they have room to wait."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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