December is the time of the season when investors seldom have to worry about stock market performance, particularly in years that come before a presidential election. Sure, the first couple of weeks can be rocky owing to tax loss selling and if November was especially strong but, as a rule, December usually comes through and gives investors an up arrow, according to Jeffrey Hirsch of the Stock Trader’s Almanac . “Trading in December is holiday-inspired and fueled by a buying bias throughout the month,” Hirsch recently told subscribers. “However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins.” Stock market returns in Decembers that come before a presidential election typically deliver especially outsized returns: Pre-election year December average returns since 1950 (or index inception) Dow Industrials: third best of year, +2.7% S & P 500: third best, +2.9% Nasdaq: second best, +4.2% Russell 2000: second best, +3.0% Source: Stock Trader’s Almanac But even in years that don’t precede a presidential election, the final month typically ranks as third best for both S & P 500 and Dow Jones Industrial Average, also going back to 1950, with average gains of 1.4% and 1.5%, respectively. Nasdaq data only goes back to 1971, but the same truth holds, with December as the third-best month of the year. December does even better for small-cap stocks, at least going back to 1979, delivering the year’s second-highest monthly return. That small cap return is usually back end loaded, however, only starting around the middle of the month. Five years ago, December 2018 was unusually terrible for stocks but, as a rule, “the market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year,” Hirsch wrote. One of the caveats to be mindful of, however, often comes “[i]f the market has experienced fantastic gains leading up to December, stocks have pulled back in the first half of the month,” the Almanac told subscribers in November. As to that November strength the Almanac referenced, bear in mind that not only is the S & P 500 ahead 8.6% so far this month, but the S & P 500 Technology Index is higher by 13%, while all seven of the Magnificent Seven stocks of Nvidia , Tesla , Meta , Microsoft , Amazon , Apple and Alphabet are up anywhere between 10% and 18% this month.
