December is Historically a Strong Month for the Market (5 minutes)

As Labour Day approached earlier this year, we wrote that September is historically the worst-performing month in the market. We expected volatility throughout the month and sure enough, that’s exactly what we received.

Using that same data, December is historically a strong month for the stock market.

Since the 1970s, the average return during December has been about 1.7%.

That ties for the second-best month of the year after November. In case you didn’t notice, the S&P 500 and the S&P/TSX Composite index rose 5.4% and 5.3%, respectively, last month.

With seasonal strength on our side, several other considerations support the continuation of last month’s rally to continue.

First, historical precedent suggests that when the S&P 500 contracts by 15% in the first half of the year, a 15% to 18% rally traditionally follows in the last six months of the same year. In the first six months of 2022, the index fell almost 21%. Since June 30, it has rebounded just under 8%.

Second, the market has appreciated by 14% on average since 1944 in the six months following U.S. midterm elections that take place in November. The strongest gains have accompanied a gridlocked Congress. This is because drastic changes in fiscal policy are less likely to occur.

Third, earlier today, U.S. Fed Chair Jay Powell said during a Q&A with the Brookings Institute that its was time to moderate future interest rate hikes. This long-anticipated announcement was welcomed news by the market.

As December approaches, we expect the rally to continue into year-end.