Seasonality of December

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Looking forward to December, the average return improves to 1.4% with positive results realized in 70% of periods over the past 50 years. Returns have ranged from a gain of 11.2% in 1991 to a loss of 6.0% in 2002. Given this range, December has the best risk/reward of any month of the year, the result of upbeat sentiment through the holiday period. While overall positive, the tendencies for the S&P 500 Index in this last month of the year differ between the two halves of the period. The first half typically encompasses the tax loss selling period, falling between December 7th and December 15th, on average. Average return in the first 15 days of the period is –0.13% with results almost evenly split between positive and negative performance over the last 50 years. The last half is when the bulk of the gains are generated as investment managers close the books on their portfolios for the year. The S&P 500 Index has averaged a gain of 1.59% in the last 16 days of the month with positive results recorded in 80% of the last 50 periods. With this pattern in mind, investors are typically wise to buy the early month weakness, setting themselves up for the Santa Claus rally, which runs into the new year.

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