Seasonal trends are an oft-discussed topic on Wall Street, particularly around this time of the year as the market approaches the so-called “Santa Claus rally” window in late December. This year’s bear market certainly has investors hoping for some holiday cheer. So thought we’d look at what the Santa Claus rally phenomenon is all about and which Club stocks have had the best and worth December track records in recent years. Is Santa coming to town? The Santa Claus rally refers to the final five trading days of the year (in 2022, they are Dec. 23, 27, 28, 29 and 30 since markets are closed on Monday, Dec. 26 in observance of Christmas) and the first two of the new year (Jan. 3 and 4, again, since markets are closed Jan. 2 in observance of New Year’s day). It’s a seven-day stretch over which the S & P 500 has historically tended to climb. The entire month of December has actually proven to be a historically strong period for the stock market. The S & P 500 has been positive 77% of the Decembers since 1945, according to CFRA’s chief investment strategist, Sam Stovall. The index’s average monthly price return of 1.64% in December is the best of any month during that timeframe, CFRA found. Investors would surely welcome a strong December after a terrible 11 months for the stock market. But, of course, past outcomes are not indicative of future performance, and another word of caution is in order because of the S & P 500’s dismal year-to-date performance in 2022. In the Decembers following the S & P 500’s 10 worst January-through-November performances since 1945, the index has only finished positive 60% of the time and its average price return is actually negative — a decline of 0.33%, according to CFRA. This is all helpful context to consider amid the chatter (hope?) of favorable seasonal trends. Plus, the Federal Reserve’s policy meeting next week could sway the market in a big way. We saw what happened back in 2018 when Fed Chairman Jerome Powell’s hawkish commentary injected fear into the minds of investors. The S & P 500 tanked more than 9% that December, which at the time was its worth monthly performance in nearly a decade. This December, we’re going to have to wait and see if the Fed begins a path of smaller interest rate hikes or whether it’s still both feet on the brakes in its continued fight against inflation. In fact, all 32 companies that are currently owned by Jim Cramer’s Charitable Trust declined in December 2018, a reminder that seasonality is by no means the end-all, be-all factor determining market outcomes. Nevertheless, we think it’s certainly something to be familiar with as long as its limitations are understood. Looking at a dozen Decembers Knowing the broad history of December’s typical strength, we wanted to see how individual stocks in our portfolio have performed during the month — an exercise not intended to form the basis of any investment decisions, but only to better understand what’s happened in the recent past for Club names. Keep in mind, many of the companies are drastically different enterprises now than they were, say, 10 years ago. Whatever investor optimism or concern that fueled their trading back then may be completely different now. More recently, for example, Coterra Energy (CTRA) was formed when Cabot Oil & Gas and Cimarex Energy merged in October of 2021, a deal that made the new Coterra about a 50-50 oil and nat gas company. We looked back at the past 12 Decembers, stretching from 2010 to last year. The S & P 500 in the month was positive 75% of the time, roughly in line with the index’s overall positive frequency dating back to 1945. Its average gain of 1.07% over the past 12 Decembers is a bit light compared with its nearly eight-decade track record. The S & P 500’s best December in this stretch was 2010 when it rose 6.53%. Its worst was the aforementioned 2018, falling 9.18%. We found there were 13 Club stocks that were positive in at least nine of the 12 most recent Decembers, meaning they matched the S & P 500 by climbing at least 75% of the time. Morgan Stanley (MS) and Eli Lilly (LLY) were higher in 10 of the past dozen Decembers. These rose nine times: Johnson & Johnson (JNJ), Microsoft (MSFT), Linde (LIN), Alphabet (GOOGL), Constellation Brands (STZ), Procter & Gamble (PG), Estee Lauder (EL), Cisco Systems (CSCO), Wells Fargo (WFC), Walt Disney (DIS) and Bausch Health (BHC). Meta Platforms (META) went public in 2012, so we only have 10 Decembers worth of data for the social media stock. Its been positive in five of those Decembers, with an average monthly gain of 0.62%. Here are the five Club stocks with the best average December gains since 2010. Despite its inclusion, it’s worth noting that shares of Advanced Micro Devices (AMD) were only positive in 50% of the past 12 Decembers. Big monthly gains of 17.1% in 2019, 27.3% in 2016, and 21.6% in 2015 had an outsized impact on AMD’s average performance. The other four — Eli Lilly, Bausch Health, Morgan Stanley and Disney (DIS) — advanced in at least 75% of the past 12 Decembers. You’ll notice in the fourth column we list our Club rating on each stock. For a look at how we do our ratings and how we use them to conceptualize our portfolio, check out our commentary fully explaining our system . The five worst-performing Club stocks in Decembers since 2010 were Salesforce (CRM), has been positive in the month just twice over that stretch, as well as Amazon (AMZN), Coterra Energy, Costco (COST) and Nvidia (NVDA). It’s worth noting, there’s only one more name in the portfolio with an average monthly performance in the red: Ford Motor (F). Shares of the automaker declined an average of 0.22% over the past 12 Decembers. Bottom line Past outcomes are not predictive of future outcomes in the stock market. We hear that all the time and they are certainly words to live by. The closest thing we can do to help forecast what the market may do is to see what it’s done over and over in the past. Patterns such as seasonality may help contextualize some of the market’s near-term moves. However, as we noted earlier, they should not serve as the basis for long-term investment decisions. This December, in particular, Club members should be mindful of the influence next week’s Fed policy meeting could have over the market’s direction. Hopefully, we don’t get coal in our stockings. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on October 27, 2022 in New York City. Stocks continued their upward gains Thursday with the Dow rising nearly 400 points following a new GDP report that beat expectations.
Spencer Platt | Getty Images News | Getty Images
Seasonal trends are an oft-discussed topic on Wall Street, particularly around this time of the year as the market approaches the so-called “Santa Claus rally” window in late December. This year’s bear market certainly has investors hoping for some holiday cheer. So thought we’d look at what the Santa Claus rally phenomenon is all about and which Club stocks have had the best and worth December track records in recent years.
