Stock Market Seasonals Improve in December

The stock market has nearly made it through the most dangerous seasonal time of the year and is approaching December, which has a positive seasonal profile.

Since 1950, the S&P 500 ($SPX) (SPY) index has shown an average monthly gain of +1.55% in December, making it the third-best month of the year behind November (+1.69%) and April (+1.68%).  January also tends to be a positive seasonal month, with an average monthly gain since 1950 of +1.07%.

The stock market obviously remains in a bear market, which means there continues to be downward pressure on stocks in general.  The S&P 500 is currently down -19.1% on a year-to-date basis.  However, favorable seasonals could at least cushion any new downside blows.

The S&P 500 index made it through the summer and autumn falling by more than -10% in a single month, although September was close at -9.34%.  The S&P then recovered by +7.99% in October and is up +1.93% so far in November.

This past September lived up to its negative seasonals with its -9.34% monthly decline, making it the worst month so far in 2022.   Since 1950, the S&P 500 index in September has shown an average decline of -0.54%, making it the worst month of the year and the only month with an average monthly decline.

While the average monthly change in stock prices is important for considering seasonals, it is also important to note the months of the year when unusually large moves tend to happen.  The most volatile time of the year tends to be from August through November.

From 1950 through 2021, there were nine times when the S&P 500 showed a monthly decline of more than -10%.  Six of those nine plunges (i.e., 67%) occurred during the dangerous period of August through November.  The worst months, with two plunges of more than -10%, were September (in 1974 and 2002) and October (in 1987 and 2008).  The two other bad months during that time frame, with one plunge of more than -10%, were in August (1998) and November (1973).

Looking at the plus side, there have been 13 times since 1950 when the S&P 500 index has shown a monthly gain of more than +10%.  Eight of those 13 monthly gains (i.e., 62%) have occurred during the volatile period of August through November.  There have been three gains of more than +10% in October (1974, 1982, 2011) and November (1962, 1980, 2020) and two gains of more than +10% in August (1982, 1984).  The other good month for big gains is January, with three gains of more than 10% (1975, 1976, 1987).

Over the near term, investors will be hoping for some support from December’s positive seasonals. However, stock market volatility could remain high due to uncertainty about the Fed’s rate-hike regime, the possibility of a recession in 2023, and the possibility of more crypto fall-out.

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