The Markets: The S&P 500 index closed November positive 3.0% bringing the year-to-date performance to a whopping +25.30%. The Dow gained 3.77% bringing the year-to-date performance to 20.25% and the NASDAQ finished the month 3.88% bringing the year-to-date performance to a 30.60% according to the Wall Street Journal.
Around this time a year ago, Seema Shah, chief strategist at Principal Global Investors, warned that stocks were facing an imminent selloff. Shah, in a recent interview she cautioned that equities are at risk of another selloff if a partial trade deal can’t be reached before the next China tariff deadline on December 15. On the final trading day of the month, China warned that they are prepared to take “strong counter-measures” against the U.S.
“If that trade deal doesn’t happen and if everything falls apart and it feels like tensions are getting worse, then I think we are facing a potential repeat of last year, and it will be worse,” Shah told MarketWatch. She explains a “bigger shock move” would be probable because liquidity falls so much in December.
The Counter Argument: The Santa Claus rally is Wall Street’s nickname for the unusually strong stock-market gains typically seen during the final five trading days of the year and the first two trading days of the following year.
Since 1950, the S&P 500 index has gained an average of 1.3% during this stretch, about six-and-a-half times the average seven-day rolling performance of 0.2%, according to Dow Jones Market Data. For the Dow Jones Industrial Average, the average return is a touch better during this stretch at 1.4%.
Despite last December’s brutal stock market rout — when the S&P 500 lost 9.1% — the final month of the year is typically a good one for stocks, the third best on average for the S&P and the second best for the Dow.
December should be an interesting month.
Have a question? Let me know! Email me at kcompton@wsmtexas.com.