December Melt Up

Stock indices were up again this week, with small cap and technology stocks leading the way. The large-cap S&P 500 index was up 1.2%, bringing its December gain to 2.4%. More impressive has been the return of the Russell 2000 small-cap index. IWM, the ETF which tracks the performance of the Russell 2000, was up 2.63% this week and is now up over 7.8% for the month. This month’s gains for the Russell now gives it a higher year to date return than the S&P 500, a prospect which seemed preposterous just a couple months ago. Since the end of October the IWM is up over 27.5%! As a writer I hate the use of exclamation points, but that seeing the 7-week return for small caps is startling.

Last week I posited that if we are not experiencing Irrational Exuberance, we are at least experiencing elevated exuberance. Every time I turn on CNBC there seems to be another analyst on trying to rationalize the current market price ramp. From a valuation standpoint there can be no real justification, but to borrow a sports phrase, “That’s why you play the game.” If markets were as simple as adding numbers on a ledger and coming up with a rational price, then there really would be no need for a marketplace. The thing about pricing “bubbles’ is that they can go on much longer than you can imagine, climb higher than you think, and ultimately pop and decline further than you fear.

Even if I were to declare we are in a bubble, my declaration would not be intended to be construed that the end of the rally is nigh. With a couple weeks left in the year I would expect us to see much of the same price action we’ve seen the last couple months. January, and Q1 2021 should provide interesting markets. With a potential for violent price action one direction or another.

This will be our last note before Christmas and David and I would like to wish all of you a Merry Christmas and hope that you are able to spend surrounded by loved ones.

Thanks for reading,

Zach and Dave  

   Disclosures

All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.  Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

This material does not provide individually tailored investment advice. It has been prepared without

regard to the individual financial circumstances and objectives of persons who receive it. The strategies

and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth

recommends that investors independently evaluate particular investments and

strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a

particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of

factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)

governmental programs and policies, (iii) national and international political and economic events, war

and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities

and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other

disruptions due to various factors, including lack of liquidity, participation of speculators and

government intervention.

Foreign currencies may have significant price movements, even within the same day, and any currency

held in an account may lose value against other currencies. Foreign currency exchanges depend on the

relative values of two different currencies and are therefore subject to the risk of fluctuations caused by

a variety of economic and political factors in each of the two relevant countries, as well as global

pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and

foreign interest rates and inflation, global, regional or national political and economic events, monetary

policies of governments and possible government intervention in the currency markets, or other

markets.