With the year-end in sight, it will be interesting to see if we get a Santa Claus Rally—a situation in which a stock rally occurs between Christmas and New Year’s Day.
The month of December has historically been positive for stocks, so if you want to play the percentages, buy stocks now and ride a possible stock rally.
The odds for success are way better than what you would find in Vegas.
The S&P 500 edged higher in December in 45 years, while declining in 15 years since 1950, according to the Stock Trader’s Almanac. The average gain for the index during this time was 1.6%. But the index stock rally this year could be higher, as this is a pre-election year. The S&P 500 has returned 3.30% in this situation in the past.
If you like small-cap stocks, take note, as small-cap stocks tend to have a stronger stock rally than big-cap stocks beginning near the mid-point of December. That’s next week. The Russell 2000 has advanced an average 2.7% over the past 31 years, including 24 up years. And, in pre-election years, the results have been stellar, with the Russell 2000 advancing 4.4%.
But, for the best stock rally gains, technology has fared the best, with the NASDAQ up 5.4% in December in pre-election years.
At this time, the eurozone still needs to ratify the debt plan, which is placing some pressure on stocks. Standard & Poor’s placed each of the 17 eurozone countries on watch and said there could be rating cuts to each with the exception of Germany. The reality is that the problems in Europe are not going away. Even when a resolution is finalized, there will be continued growth problems in Europe down the road. The chart of the top 350 European companies shows the absence of a stock rally in European stocks.
With the recent stock rally, the 200-day moving average (MA) is the target. The S&P 500 advanced 7.4% for the week to December 2; nevertheless, the index closed lower in all but three of the last 12 sessions. The broader market continues to hobble along, but has advanced from August.
The key stock indices rallied after trading lower at their respective 50-day MAs, but the 200-day MA will be a crux to overcome during a stock rally. Only the DOW has managed to break its 200-day MA. About 36% of all U.S.-listed stocks remain below their 200-day MA at December 6. About 67.5% are above their 50-day MA, down from 75.43% a month earlier.
Over the next few weeks, the retail sector will be highlighted. A strong push will drive up the fourth-quarter GDP and give a lift to stocks heading into 2012. The early signs have been positive. There were record sales of $52.4 billion on Black Friday along with a strong Cyber Monday. The optimism was supported by a surprise jump in the Consumer Confidence for November to 56.0, which was above the estimate of 42.5 and the revised 39.8 in October. The strong reading suggests that consumers may be feeling better.
The chart of the SPDR S&P Retail Index shows a bullish double bottom followed by a subsequent rally back to the recent highs.
December is looking good; if the eurozone can sort out its mess, a stock rally could materialize into January. The odds favor going long the stock market.
While stocks look positive for December, I’m not keen on the housing market as we move into 2012, as I discussed in Home Sweet Home? Not for the U.S. Housing Market.
I’m also not keen about our massive debt load, never mind the debt crisis in Europe. You can read why this country has a lot of work ahead of it in America, Time to Talk About Our Debt.