Indicator of the Week: Why the S&P's Rally Could Continue Through New Year's

History suggests the SPX could continue to rally through the end of December

Senior Quantitative Analyst
Dec 14, 2016 at 7:00 AM
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With the end of the calendar year approaching and the holidays coming up, the second half of December is an interesting time for stocks, wrapping up one of the most historically bullish months of the year. Below I'll take a look at how stocks have typically behaved around this time of year. So far this December, stocks have been pretty stellar, with the S&P 500 Index (SPX) gaining over 3% for the month. I'll also take a look at what the early December gains mean for the rest of the month. 

Second Half of December: Below is a table comparing the first half of December to the second half of December over the past 50 years for the SPX. The first half, on average, is almost flat, with barely over 50% of the returns positive. The December gains are typically found in the second half of the month. From Dec. 15 through the end of the year, December has averaged a gain of 1.58% and has been positive 80% of the time.

SPX December Halves Dec 13

The black line on the chart below shows the typical path of the SPX during the month of December over the past 50 years. You can see the outperformance in the second half that was pointed out in the table above. 

SPX this year versus average December Dec 13

You can also see in the chart above that the index has burst higher to start off this month. Does that mean investors are too late to capture December gains? Not necessarily. The table below looks at how the SPX has done in the second half of the month, depending on returns in the first half. When the index is up by at least 2% in the first half of the month, the second half has been positive eight out of nine times, averaging a return of 2.3%. On the flip side, a positive return of less than 2% in the first half of December has led to an average gain of just 0.8% in the second half, and a positive send half just 71% of the time -- even worse than second-half performance when the first half of the month was negative.

SPX Second Half December Dec 13

Holidays: Here's one more reason to be bullish over the next few weeks. In just two weeks, it will be the week of Christmas, followed immediately by the week of New Year's. The table below summarizes how these weeks have performed compared to other weeks over the past 50 years. The holiday weeks each average around a 0.6% gain and were positive over 60% of the time. Compare that to typical weeks, when the SPX has averaged a gain of just 0.1%, and positive 55% of the time. There seem to be some seasonal tailwinds that could be headed our way over the next few weeks. 

SPX Holiday Weeks Dec 13

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