December Almanac & Vital Stats: Stronger in Pre-Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
November 16, 2023
[Publishing note: Happy Thanksgiving!! Our next regularly scheduled email Issue will be on Thursday, November 30.]
December is the number three S&P 500 and Dow Jones Industrials month since 1950, averaging gains of 1.4% and 1.5% respectively. It’s the second-best Russell 2000 (since 1979) month and third best for NASDAQ (since 1971). It is also the third best month for Russell 1000 (since 1979). In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. However, the market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. When December is down 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 have pulled back in the first half of the month.
[Pre-Election Year December Performance Table]
In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 2.7%, S&P 500 2.9%, NASDAQ 4.2%, Russell 1000 2.9%, and Russell 2000 3.0%. DJIA has advanced in 14 of the last 18 pre-election year Decembers. DJIA’s worst pre-election December was in 2015 when it declined a modest 1.7%. DJIA’s best pre-election year December was in 1991, up 9.5%. NASDAQ’s pre-election year December track record is somewhat mixed, up 7 and down 6. An 11.29% advance in 1991 and a whopping 22.0% in 1999 drive its average performance to 4.2%. Like DJIA, NASDAQ’s poorest pre-election year December was in 1983, off 2.5%.
[December Seasonal Pattern Chart]
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. December’s first trading day has been bearish for S&P 500 and Russell 1000 over the last 21 years. A modest rally through the fifth or sixth trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in and propel the indexes higher with a pause near month-end. Pre-election year Decembers follow a similar path, but with noticeably larger historical gains in the last third of the month.
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 email Issue will be sent prior to the market’s open on December 18 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 22 and lasts until the second trading day of 2024. Average S&P 500 gains over this seven trading-day range since 1969 are a respectable 1.3%.
This is our 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 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) and 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.
December Triple Witching Week is more favorable to the S&P 500 with Monday up fourteen of the last twenty-three years while Triple-Witching Friday is up twenty-six of the last forty-one years with an average 0.18% gain. The entire week has logged gains twenty-eight times in the last thirty-nine 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 thirty-one of the last forty-one years. Small caps shine especially bright with a string of bullish days that runs from December 20 to 22.
Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (NASDAQ up twelve of the last sixteen). On the last trading day of the year, NASDAQ has been down in seventeen of the last twenty-three 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 six advances since.
[December 2023 Vital Stats Table]