5 Historical Patterns Suggesting Bullish Momentum Will Continue in December

  • Market Overview
  • Editors Pick
  • Investor sentiment continues to rise and is increasingly outperforming its historical average (48.8% vs. 37.5%).
  • November was not only very good for the stock markets but also for the 60/40 portfolio.
  • In this piece, we will look at 5 bullish patterns that throughout history have rarely failed and are set to repeat as December kicks off.
  • Missed out on Black Friday? Secure your up to 60% discount on InvestingPro subscriptions with our extended Cyber Monday sale.

November 2023 was a remarkable month for capital markets around the world. Here's a snapshot of the notable performances across various asset classes:

  • S&P 500 : The S&P 500 experienced a robust month, rising +9.5%. This performance stands as its second-best November since 1980, trailing only the extraordinary rally driven by the pandemic in 2020. Almost all sectors, except energy, contributed to the positive trend. Technology stocks notably led the gains, posting an impressive +12.7%.
  • Dow Jones Industrial Average : November witnessed the second-highest monthly close in the history of the Dow Jones. The total return for the month reached a new high, showcasing a remarkable +181% increase over the last decade, equivalent to an annualized growth rate of +10.9%.
  • Nasdaq 100 : The Nasdaq 100 surged +11% in November, demonstrating resilience by not experiencing a single decline of 1% or more throughout the month.
  • Russell 1000 : The Russell 1000 posted a substantial gain of +9.77% for the month. Within this index, 38 stocks saw increases of more than +30%, with 14 rising over +40%, and seven climbing more than +50%. Notable performers included Affirm with an impressive +95.4% gain, followed by Roku (NASDAQ: ROKU ) (+74.92%), Coinbase (NASDAQ: COIN ) (+61.62%), Block Inc (NYSE: SQ ) (+57.60%), Gap Inc (NYSE: GPS ) (+56.8%), and Expedia (NASDAQ: EXPE ) (+42.9%).
  • U.S. Bond Market: The U.S. bond market saw a significant uptick, gaining +4.5% in November. This marks the eighth-largest monthly advance since 1976 and stands as the best month since May 1985.
  • US 60/40 Portfolio: The US 60/40 portfolio experienced a robust +7.3% gain in November, making it the second-best month in the last 30 years (following April 2020) and the ninth-best month since 1976.

Looking ahead to December, the Federal Reserve is expected to keep the interest rate stable on December 13, with expectations of a subsequent rate cut in May. Market sentiments have already factored in this likelihood, making Powell's subsequent statements crucial.

As a bullish November concludes for markets, let's take a look at 5 patterns that are set to play out, potentially leading to a consecutive bullish month in the form of December.

Historical patterns often provide valuable insights, having proven effective over numerous years. While they don't guarantee accuracy, these patterns, developed through extensive historical observation, are worth watching out for.

1. S&P 500 Performance Post +8% Gain

Since 1950, when the S&P 500 records a monthly gain exceeding +8%, the subsequent months tend to be positive. The averages are intriguing:

  • 1 month later: +1%
  • 3 months later: +3%
  • 6 months later: +6.1%
  • 9 months later: +9.2%
  • 1 year later: +12.5%

2. Positive November Post Three Consecutive Down Months

Following a three-month decline in August, September, and October, historical patterns indicate a robust performance in November, typically averaging +3.7%. In the current instance, this pattern has not only held but has nearly tripled those anticipated gains.

Following this pattern, December tends to rise an average of +0.8%-1%, with an average increase of +4.5% in the first two months of the following year (2024).

3. December Performance

Since 1926, December has yielded positive returns for the S&P 500 78% of the time, with an average return of +1.6%. Notably, the stronger gains typically occur in the last third of the month, particularly in years preceding elections. Additionally, mid-December tends to mark the point where small-cap stocks outperform larger counterparts.

4. Santa Claus Rally

Officially, the Santa Claus rally spans the last 5 business days of the year and the first 2 business days of the following year, totaling 7 days. Historically, this period has shown favorability for stock markets, outperforming all other 7-day spans throughout the year with a return exceeding +1.33%.

5. Weeks Surrounding Christmas

Post-World War II, the week preceding Christmas sees an average return of +0.5% for the S&P 500, and during the week following Christmas, an average return of +0.7%.

While past performance doesn't guarantee future results, these historical patterns offer valuable insights for investors navigating the markets.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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