While investors currently grapple with a number of very troubling geopolitical and economic issues -- namely the threat of war in Korea and the potential sovereign debt contagion in Europe, interest rate hikes by China, among others – some might take solace in the fact that December has consistently been the best-performing months for U.S. going back more than sixty years.
According to data from Standard & Poor’s, since 1945, the S&P 500 index has gained an average of 1.7 percent in December, making it the favorite month for equity investors (versus an average gain of 0.66 percent for all twelve months).
Or to put it another, since the end of the Second World War, the S&P 500 index has posted gains during December 77 percent of the time (compared with an average of 59 percent for all twelve months).
Sam Stovall, chief investment strategist, points to some even more encouraging data as we enter the final month of the year:
The S&P 500 climbed by an average of 1.5 percent in December following mid-term elections. Even better, the market rose an average of 2.9 percent during Decembers which came on the heels of advances in September and October leading up to mid-term elections (as we have witnessed this year).
Lastly, the stock market simply does not seem to pull back (defined as a decline of 5-10 percent) during December.
Of the 53 pullbacks since the end of World War II, only two commenced in December. Moreover, of the 18 market corrections (defined as a 10-20 percent drop) since 1945, none began in December. Lastly, since 1945, only one bear market (defined as a market plunge of 20 percent or more) began in December.
“Since the overall S&P 500 typically does so well in December, it should come as no surprise that none of the 10 sectors in the [index] posted average declines during the month since 1991, which is as far back as S&P has sector data,” Stovall added.
Indeed, since 1991, the S&P 500 performed best in April and December – rising an average of 1.8 percent each of those months.
“The market’s performance in December has traditionally been quite favorable, as it has risen the highest, and stumbled least frequently, of all months,” Stovall said.
“What’s more, market tops and bottoms have rarely occurred in this month. So even though history offers no guarantees, it delivers reassurances.”
However, Louis Harvey, president of Dalbar Inc., a Boston-based mutual fund consulting firm, is somewhat puzzled by December’s strong historical stock price performance.
Many investors typically sell off holdings in November and December in order to realize losses for the current tax year.
Harvey suggests that December may deliver good market results because September has historically been the poorest month for stock appreciation.
“My inclination is to think that the stock market is simply rebounding from weak returns or losses that it incurs in September,” Harvey noted.
Indeed, Stovall’s data seems to back up this assertion. Since 1945, the S&P 500 has slipped an average of 0.5 percent in September, making it the worst month for performance.
Similarly, the stock market only shows gains 45 percent of the time in September – again, the worst such month.