Aristotle once said, "To appreciate the beauty of snowflakes, one must endure the cold of winter." So, as the US stock market approaches the end of the year, what attitude will investors take to appreciate a magnificent snowy landscape?
Ryan Detrick, Chief Market Strategist of Carson Group, wrote over the weekend that the last month of 2024 is approaching, and historical patterns may tell you five things about how the US stock market will go in December:
① Santa Claus Market
Detrick pointed out that firstly, you should have heard of the 'Santa Claus Rally' market. The Santa Claus market refers to the last 5 trading days of each year (usually starting after Christmas) and the first two trading days of the following year. According to Yale Hirsch, author of the Stock Trader Yearbook, it is highly likely that the US stock market will perform strongly during this period. Over the past 70 years, the S&P 500 index has averaged an increase of over 1.3% in these seven trading days.
It is not difficult to imagine that the approaching "Santa Claus market" in the coming weeks may stimulate market optimism. However, Detrick also reminds that the scope of the "Santa Claus market" is mainly the year-end and early year rebound seen in most years, and does not cover the entire month of December. This aspect still needs to be distinguished.
② Election Year Experience
So, if we turn our attention to a single month, how did the US stock market perform in December history? Detrick first compiled statistics on election years over the past 70 years.
According to Detrick's statistics, December is the second best performing month for the S&P 500 index in an election year - only November (which is the election month itself) outperforms it. Considering the further surge in US stocks during this year's election month, it seems that this situation is happening again so far. Additionally, it is worth noting that in December of an election year, there is an 83.3% probability that the S&P 500 index will rise, making it the most likely month for the market to rise during the election year.
③ Average performance in December
Excluding the impact of the US presidential election, Detrick's statistics show that December has remained the third best performing month on average for the S&P 500 index since 1950, second only to April and November.
However, in the past decade, December's performance has not been outstanding - it only ranks tenth in the average monthly return rate of the year, partly due to a 6% drop in the S&P 500 index in December 2022 and a 9% drop in December 2018.
④ The month that is most likely to rise
In terms of probability, there is clearly no month more likely to rise than December.
Detrick's statistics show that the probability of the S&P 500 index rising in December over the past 70 years is close to 75%. Next is April - the probability of an increase exceeds 71%.
⑤ Has the year-end tone been set in November?
What would happen if the US stock market had already risen significantly by the end of the year?
Detrick stated that history suggests that the outcome is likely to be a further rise in the stock market until the end of the year.
Detrick's statistics show that in the past 10 times when the S&P 500 index rose by at least 20% in the first 11 months of the year, 9 times it achieved further gains in December, with an average increase of 2.4%.
Coincidentally, Jeff Hirsch, the editor in chief of the Stock Trader Yearbook, recently stated that Thanksgiving may mark the beginning of a strong seasonal bullish pattern in the US stock market.
He wrote in a report that he had merged these seasonal events into one trade: buying on the Tuesday before Thanksgiving and holding until the second trading day of the new year - since 1950, the probability of a positive return for the S&P 500 index from the Tuesday before Thanksgiving to the second trading day of the new year has been as high as 79.73%, with an average increase of 2.58%.