Posted by George Smith, CFA, CAIA, CIPM, Portfolio Strategist
Wednesday, November 30, 2022
As November draws to a close, many investors are looking forward to stocks delivering some holiday cheer and a potential December stock market rally. Today we take a look at what clues seasonality data may give us for stock market performance in December. Turns out that while, historically, December has been a very strong month for stocks, in recent years seasonality trends have been weaker, and a December rally has often failed to appear following a difficult year for stocks.
Looking back, historically, to 1950 (chart below), December has been the strongest month as measured by the proportion of positive monthly returns. It beats the next best month, April, with almost 4% more positive occurrences.
Looking at average returns by month, dating back to 1950, December is the second strongest month, with an average return of just over 1.5%. Over the same time period, only November has a higher average gain—of almost 1.7%. However, when the data is broken out by time period, as shown in the below chart, the average December return has been waning, with average gains of only 0.9% and 0.5% when looking only at the past 20 and 10 year periods. This puts December firmly in the middle of monthly performance rankings over those time periods, with July being the strongest month over the past 10 years. Midterm year Decembers have typically been a little weaker than an average December, but still with a strong 1.2% average gain over the period dating back to 1950.
The more recent midterm year data shows a similar pattern, with weaker recent December performance than the longer-term history. Recent midterm year Decembers have actually been negative on average, with midterm year Decembers since 2002 seeing declines of -1.3%, and -1% on average since 2012. A December rally has also often failed to appear when the rest of the year has been bad for stocks—as we’ve seen year-to-date with 2022. If stocks have been down more than 5% over the first 11 months of the year, then December has, on average, been around flat, with the average December seeing progressively worse average performance when the rest of year has seen a bigger drawdown for stocks. A decline of more than 15% from January to November, as we have seen this year, has, on average, seen December follow suit and end the month down by 1.4%.
In summary, longer term seasonals are supportive for stocks in December, and as we explored in this blog, so is the presidential cycle, but shorter term seasonals warrant caution that a December rally may not be in the cards this year.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
For a list of descriptions of the indexes and economic terms referenced in this publication, please visit our website at lplresearch.com/definitions.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value