December Almanac, Vital Stats & Strategy Calendar: By: Jeffrey A. Hirsch & Christopher Mistal | November 19, 2015 | Email | Print

December is the number one S&P 500 month and the second best month on the Dow Jones Industrials since 1950, averaging gains of 1.7% on each index. It’s also the top Russell 2000 (1979) month and second best for NASDAQ (1971) and Russell 1000 (1979). Rarely does the market fall precipitously in December. When it does it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks can pullback.

 

In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 3.0%, S&P 500 3.2%, NASDAQ 4.9%, Russell 1000 3.5% and Russell 2000 4.0%.

 

Trading in December is holiday inspired and fueled by a buying bias throughout the month. However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins. Regardless, December is laden with market seasonality and important events. 

 

Small caps tend to start to outperform larger caps near the middle of the month (early January Effect) and our “Free Lunch” strategy is served from the offerings of stocks making new 52-week lows on Triple-Witching Friday. An Almanac Investor Alert will be sent prior to the open on December 21 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on Christmas Eve day and lasts until the second trading day of 2016. Average S&P 500 gains over this seven trading-day range since 1969 are an impressive 1.5%.

 

This is the first indicator for the market in the New Year. Years when the Santa Claus Rally (SCR) has failed to materialize are often flat or down. The last four times SCR (the last five trading days of the year and the first two trading days of the New Year) has not occurred were followed by two flat years (1994 and 2004) and two nasty bear markets in 2000 and 2008. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

 

December Triple Witching Week is more favorable to the S&P 500 with Monday up ten of the last fifteen years while Triple-Witching Friday is up twenty-four of the last thirty-three years with an average 0.4% gain. The entire week has logged gains twenty-five times in the last thirty-one years. The week after December Triple Witching is the best of all weeks after Triple Witching for DJIA and is the only one with a clearly bullish bias, advancing in twenty-three of the last thirty-three years. Small caps shine especially bright with a string of bullish days that runs from December 17 to 28.

 

Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (DJIA up seven of the last eight). On the last trading day of the year, NASDAQ has been down in twelve of the last fifteen years after having been up twenty-nine years in a row from 1971 to 1999. DJIA, S&P 500, and Russell 1000 have also been struggling recently and exhibit a bearish bias over the last twenty-one years. Russell 2000’s record very closely resembles NASDAQ, gains every year from 1979 to 1999 and only four advances since.