Best Time to Buy Stocks in December

Stocks tend to flourish, especially toward the end of the month

Senior Quantitative Analyst
Nov 27, 2018 at 4:41 PM
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December is known to be a bullish month for stocks. The table below comparing monthly returns of the S&P 500 Index since 1950 confirms this, with the last month of the year showing both the highest average return and percent positive. Another interesting stat for December is that since 1929 -- as far back as we have data on the index -- it has never ranked as the worst month of the year. Unless the index loses more than 6.94% (the loss in October), then the streak will continue in 2018.

SPX Returns Monthly

Below, I break down the month further showing the typical path of the S&P 500 in December, which highlights the huge difference in returns when you compare the first and second half of the month. Also, I look at how stocks respond in December when the index limps into the month, as is happening now.

The S&P's Typical Path in December

The chart below shows the typical path of the S&P 500 in the month of December. The month usually ends up fine, but it looks a bit like a roller coaster to get there. Over the past 25 years, the index tends to get off to a hot start, averaging a gain of more than 0.75% within the first week. When you get to the midpoint of the month, however, the index has given back the gains and averages a negative return. From there, though, it’s steadily higher into the end of the year. Looking at the longer-term data since 1950, the first half of the month has a similar path, but the high and low aren’t as extreme. The second half of the month is just as steady.

SPX Typical Path December

(Editor's note: We fixed the paragraph and chart below to reflect the correct number of returns.) Here are the numbers for the first and second half of the month. The first half has barely broke even on average-- more recent data shows it has been negative, as you see above -- with 57% of the returns positive. Almost all of December gains have occurred in the second half of the month. From Dec. 15 through Dec. 31, the S&P 500 has averaged a 1.51% gain, with 79% of the returns positive.

SPX December 1H 2H returns

Is December a Bounce-Back Month?

The table below shows what has happened in December based on how the first two months of the fourth quarter have performed. December seems to act as kind of a mean reversion month. When the first two months of the quarter have been up big (more than 5%), December has averaged a return of about a half of a percent.

When the first two months of the quarter have been up just moderately, December has gained an average of 1.96%. This year, the S&P 500 is down over 8% since September. This is a good sign for December. When the fourth quarter has been negative heading into December, the S&P 500 averages a gain of 2.61%, with almost 90% of the returns positive, so hopefully this particular trend continues.

SPX December Returns Q4


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