December is the number one S&P 500 month and the second best month on the Dow Jones Industrials since 1950. DJIA averages 1.7% and S&P 500 gains 1.6% on average. It’s also the top Russell 2000 month and second best for Russell 1000 (1979). December is NASDAQ’s second best month. 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. Conversely if the market has been through the ringer of late and December is down as well, then expect a rally to ensue shortly.
Market 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 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 18 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on Friday December 22 and lasts until the second trading day of 2018. Average S&P 500 gains over this seven trading-day range since 1969 are solid 1.3%.
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. Of the last six 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 three flat years (1994, 2004 and 2015), two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
In the last sixteen post-election years, December’s ranking slip to #8 S&P 500, #7 NASDAQ and DJIA #5. Small caps, measured by the Russell 2000, have had a field day in post-election-year Decembers. Since 1980, the Russell 2000 has lost ground just twice in nine post-election years in December. The average small cap gain in all nine years is a solid 2.5%.
December Triple Witching Week is more favorable to the S&P 500 with Monday up eleven of the last seventeen years while Triple Witching Friday is up twenty-four of the last thirty-five years with an average 0.3% gain. The entire week has logged gains twenty-five times in the last thirty-three 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-five of the last thirty-four years. Small caps shine especially bright the week after Triple Witching with a string of five bullish days in a row.
Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before. On the last trading day of the year, NASDAQ has been down in fifteen of the last seventeen 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 clearly bearish bias over the last twenty-one years. Russell 2000 record very closely resembles the NASDAQ, gains every year from 1979 to 1999 and just four advances since.
| December (1950-2016) |
| |
DJI |
SP500 |
NASDAQ |
Russell
1K |
Russell 2K |
| Rank |
|
2 |
|
1 |
|
2 |
|
2 |
|
1 |
| #
Up |
|
47 |
|
50 |
|
27 |
|
29 |
|
30 |
| #
Down |
|
20 |
|
17 |
|
19 |
|
9 |
|
8 |
| Average
% |
|
1.7 |
|
1.6 |
|
1.8 |
|
1.5 |
|
2.6 |
| 4-Year Presidential Election Cycle Performance
by % |
| Post-Election |
|
1.0 |
|
0.5 |
|
1.0 |
|
1.3 |
|
2.5 |
| Mid-Term |
|
1.5 |
|
1.8 |
|
0.6 |
|
1.1 |
|
1.7 |
| Pre-Election |
|
2.7 |
|
2.9 |
|
4.3 |
|
2.9 |
|
3.1 |
| Election |
|
1.4 |
|
1.2 |
|
1.4 |
|
0.8 |
|
3.0 |
| Best & Worst December by % |
| Best |
1991 |
9.5 |
1991 |
11.2 |
1999 |
22.0 |
1991 |
11.2 |
1999 |
11.2 |
| Worst |
2002 |
-6.2 |
2002 |
-6.0 |
2002 |
-9.7 |
2002 |
-5.8 |
2002 |
-5.7 |
| December Weeks by % |
| Best |
12/2/11 |
7.0 |
12/2/11 |
7.4 |
12/8/00 |
10.3 |
12/2/11 |
7.4 |
12/2/11 |
10.3 |
| Worst |
12/4/87 |
-7.5 |
12/6/74 |
-7.1 |
12/15/00 |
-9.1 |
12/4/87 |
-7.0 |
12/12/80 |
-6.5 |
| December Days by % |
| Best |
12/16/08 |
4.2 |
12/16/08 |
5.1 |
12/5/00 |
10.5 |
12/16/08 |
5.2 |
12/16/08 |
6.7 |
| Worst |
12/1/08 |
-7.7 |
12/1/08 |
-8.9 |
12/1/08 |
-9.0 |
12/1/08 |
-9.1 |
12/1/08 |
-11.9 |
| First Trading Day of Expiration Week: 1990-2016 |
| #Up-#Down |
|
16-11 |
|
15-12 |
|
13-14 |
|
15-12 |
|
13-14 |
| Streak |
|
U2 |
|
D1 |
|
D1 |
|
D1 |
|
D3 |
| Avg
% |
|
0.1 |
|
0.05 |
|
-0.05 |
|
0.02 |
|
-0.2 |
| Options Expiration Day: 1990-2016 |
| #Up-#Down |
|
16-11 |
|
18-9 |
|
17-10 |
|
18-9 |
|
15-12 |
| Streak |
|
D2 |
|
D2 |
|
D2 |
|
D2 |
|
D2 |
| Avg
% |
|
0.1 |
|
0.2 |
|
0.2 |
|
0.2 |
|
0.4 |
| Options Expiration Week: 1990-2016 |
| #Up-#Down |
|
21-6 |
|
20-7 |
|
17-10 |
|
19-8 |
|
15-12 |
| Streak |
|
U1 |
|
D2 |
|
D2 |
|
D2 |
|
D2 |
| Avg
% |
|
0.7 |
|
0.7 |
|
0.2 |
|
0.7 |
|
0.6 |
| Week After Options Expiration: 1990-2016 |
| #Up-#Down |
|
19-8 |
|
17 |
|
17-10 |
|
17-10 |
|
20-7 |
| Streak |
|
U4 |
|
U4 |
|
U4 |
|
U4 |
|
U4 |
| Avg
% |
|
0.8 |
|
0.6 |
|
0.8 |
|
0.7 |
|
1.0 |
| December 2017 Bullish Days: Data 1996-2016 |
| |
5,
21, 26 |
5,
18, 21, 26 |
1,
5, 6, 11, 21 |
5,
18, 21, 26, 27 |
6, 8, 11, 18-22 |
| |
|
|
22,
26 |
|
26 |
| December 2017 Bearish Days: Data 1996-2016 |
| |
4,
29 |
29 |
19,
28, 29 |
29 |
29 |
| |
|
|
|
|
|