December is historically a good month for the stock market overall. For the 20 prior Decembers (2003 to 2022) the S&P 500 has risen in 14 of those years (70%) with an average return of 1% (all years).
This is called seasonality, and is the study of how asset prices move throughout the year.
Cory Mitchell, an analyst with Trading.biz, said, “There are times of year when certain assets tend to perform very well or poorly. This information is based on historical data.
“It doesn’t tell us what a stock will do this year, but it does provide potential trade candidates that have performed well at a particular time of year in the past.”
Here are three stocks that have tended to be strong in December.
Ferguson PLC (FERG) +6.24%
Ferguson is a plumbing and heating product distributor. Over the last 13 years the stock has risen between November 27 and December 30 in 12 of those years (92%).
- Average return on all trades: +6.24%
- Biggest profit on closed trade: +16.61%
- Biggest loss on closed trade: -2.93%
- Max drawdown (biggest drop while a trade is open): -6.55%
Ferguson has the highest average percentage return on the list, and has moved higher in December most often. While these are impressive numbers, the stocks below have longer histories of performing well in December.
Prudential PLC (PRU) +5.3%
Prudential provides life insurance and financial management services.
Over the last 22 years the stock has risen between November 28 and December 31 in 17 of those years (78%).
- Average return: 5.3%
- Biggest profit: 49.8%
- Biggest loss: -11.26%
- Biggest drawdown: -19.26%
Prudential has performed well in December—most of the time—for nearly two decades. It has the largest drawdown and biggest profit on the list.
PulteGroup Inc. (PHM) +5.19%
PutleGroup is a homebuilder in the United States.
Over the last 31 years the stock has risen between November 27 and December 31 in 24 of those years (77%).
- Average return: 5.19%
- Biggest profit: 22.08%
- Biggest loss: -9.82%
- Biggest drawdown: -13.58%
PHM has the longest track record of the three stocks discussed. While its average return is slightly lower than other stocks, PHM has a longer history of performing well in December.
Trading strong December stocks
Seasonality is backward looking. This particular scan looked for stocks that performed well late in the year. It is unknown whether these patterns will continue in the future.
Seasonality isn’t the only factor to consider when trading. Other factors such as the trend in the stock, the trend of the major stock indices (like the S&P 500), and the financial health of the company may also be considered.
The average returns and the biggest losses and profits tell part of the story. They describe how trades ended up, not what happened during a trade. The biggest drawdown highlights the type of losses that had to be endured in order to achieve the average profit.
Each investor must decide how they will capitalize on seasonal opportunities, if they choose to, while also managing risk within their comfort zone.
Leave a Comment