December has historically been a good month for stocks. Dating back to 1926, the U.S. stock market, as measured by the S&P 500 Index, has been positive 78.7% of the time in December. This is quite a bit higher than the 62.4% of the time that the U.S. market was positive over all months from 1926 to 2014 (data source: Standard & Poor’s).
Part of the gains investors historically received in December came from an end-of-year investment trend known as the Santa Claus Rally. The Santa Claus Rally refers to the long standing trend of markets advancing between Christmas and New Year’s Day. There are a number of theories on why this trend exists (e.g., some traders are away on vacation, investors invest their year-end bonuses, etc.) and it historically has helped the strong results we describe above.
Thus far in December, US stocks are down slightly. Investors were disappointed with recent news announcements from the European Central Bank (ECB) and the Organization of the Petroleum Exporting Countries (OPEC). The ECB was expected to increase the size and scale of its bond buying program, and the market was disappointed when they didn’t. Many analysts had expected OPEC to curb the amount of oil they produced to support oil prices, and they didn’t. Stocks around the world, and oil prices have both fallen.
However, today, the Federal Reserve ended its extraordinary low interest rate policy. They feel the economy is in a position where it doesn’t need rates to be this low to grow. We anticipate the Fed will take their time with future interest rate changes and that those changes will continue to be dependent on good economic data
If we look back to 2013 when the Fed announced that it was ending its bond buying program, U.S. stock markets actually rallied 3.7% for the remainder of the year (data source: Standard & Poor’s). The change was considered a sign that the Fed had confidence in the U.S. economy. The Fed also positioned that it would be data dependent on any potential interest rate hikes, but they also stressed that the economy didn’t need the Fed’s extraordinary measures to continue growing.
We feel those are positive messages for investors and the economy. Additionally, it could potentially be the news that starts this year’s Santa Claus Rally.