Stocks have historically performed well in December, especially based on the NYSE Composite and S&P 500 indices. But the Nasdaq 100, which is mainly technology stocks, hasn’t fared as well.
The major indices rallied in November, which is historically one of the strongest months of the year. That uptrend could continue through the end of the year if history repeats.
Here’s how the S&P 500 has performed in December, over the last 20 years, it has moved higher in December 70% of the time (14 out of 20 years), for an average gain of 1%.
The last decade hasn’t been as good, moving up 60% of the time with an average gain of 0.1%.
The NYSE Composite, which is a broad index containing companies from many industries and different sizes, has also done well in December.
Over the last two decades, it has moved up 70% of the time for an average gain of 1.3%.
Over the last 10 years, it has managed an average gain of only 0.1% and moved up 60% of the time.
The tech-heavy Nasdaq 100 has significantly underperformed the other indices in December, over the last 20 years, the Nasdaq 100 has moved higher 55% of the time in December, for an average gain of 0.3%.
It has moved up 60% of the time, yet has lost 0.7% on average in December during the last decade.
Seasonality is the study of how assets perform at different times of the year.
Cory Mitchell, an analyst with trading education website Trading.biz said, “Seasonality indicates that the uptrend which started in late October is likely to continue through to the end of the year.
“Most stocks should do well, but technology stocks have a more checkered history in December. While there are no guarantees in the market, the recent strong performance in stocks signals that the pullback of the prior several months is over and the uptrend is back underway.”
The seasonality chart below from StockCharts shows the monthly performance of the SPDR S&P 500 ETF (SPY) from 2003-2022; the last 20 Decembers.
The digits at the bottom of each column indicate the average return for that month. The digits above the columns are percentages of how many times the month finished higher than it started.
Seasonality doesn’t forecast the future, it only shows what has happened in the past. December has been a good month for most stocks overall, but what will happen this December is unknown.
While the major indices are trending up and seasonality points to that uptrend continuing into the end of the year, always manage risk on every trade. The indices could fall and individual stocks could drop.
Risk is managed using stop-loss orders which exit a trade if it doesn’t move up as projected, and with position size which is how much of the asset is purchased in relation to capital in the account.