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A Crazy Anomaly Is Setting Up Now in This Stock Market

By Dr. Steve Sjuggerud
Tuesday, December 15, 2015

From December to April, a crazy thing happens in Japanese stocks...
They soar.
December, in particular, is the biggest month for large gains...
Going back to 1975, Japanese stocks rallied by a larger amount in December than any other month. Take a look...

These are the price returns on Japan's TOPIX Stock Price Index for each month of the year (in Japan's currency)...
It's easy to see that December tends to be the best month for a stock rally, with nearly 2% average gains.
Two other trends quickly pop out at you when you look at the chart...
1. How poorly Japanese stocks do in the summer and fall.
  2. How well they do early in the year.

The returns from May to November look pretty darn bad. And the returns from January through April look pretty darn good.
We wondered what the returns would have been if you'd simply bought Japanese stocks on December 1, and sold them on April 30, over the last 40 years.
The numbers are pretty incredible.
As a frame of reference, Japanese stocks haven't done THAT well overall since 1975... Japan's TOPIX Index is up about 4% a year over the last 40 years (in Japanese yen terms).
However, the compound annualized gain on the TOPIX Index in the five months from December through April is 16.9%. That's great!
Meanwhile, in the seven "bad" months – from May 1 through the end of November – the TOPIX has a compound annualized loss of -4.2% a year.
Here's a simpler way to see it:
All Periods
Compound annual gains
*Returns expressed in local JPY currency

We are now in December... The start of the sweet spot.
So far, the TOPIX Index is off to a bad start. However, NOW is the time, based on "seasonality," to own Japanese stocks. They perform their best over the next four-and-a-half months.
Seasonality, by itself, isn't enough of a reason to get me to own Japanese stocks. But Japanese stocks are a pretty good value today, relative to their own history. And they've done better than U.S. stocks this year.
We actually own Japanese stocks in my True Wealth newsletter, through an exchange-traded fund (ETF).
We have a lot of things going for us... value, outperformance, and now seasonality...
If you're looking to diversify some of your investments out of U.S. stocks, Japanese stocks are a good choice today...
Good investing,

Further Reading:

You can find Steve's recent essays right here:
The Upside Potential Here Could Blow Your Mind
"Based on what has happened the last few times around, we could see bigger gains ahead in stocks."
A 1,570% Safer-Than-Stocks Return at an 8% Discount Today
"I can't do much better than to share with you a market-beating, low-risk investor... whose fund is selling at a significant discount to liquidation value..."

Market Notes


The bull market in guns continues... just look at today's chart of industry giant Smith & Wesson Holding (SWHC).
Following many high-profile shootings and talks of tighter gun regulations this year, folks are stocking up on guns. Smith & Wesson has been around for more than 160 years. It's known around the industry for having an excellent brand name. Its products have appeared in many Hollywood classics.
Since 1980, the number of guns owned in the United States has roughly doubled to 350 million, according to the Bureau of Alcohol, Tobacco, Firearms and Explosives. Last year alone, Smith & Wesson recorded more than $500 million in sales, thanks to the increase in gun demand.
As you can see from the chart below, shares have continued to soar in 2015. The stock is up nearly 150% year-to-date, and just reached a new all-time high. Guns are in high demand, and Smith & Wesson stands to be one of the main beneficiaries.

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