Sam Stovall: The Outlook for Seasonal Optimism

12/02/2020 5:00 am EST


Sam Stovall

Chief Investment Strategist, CFRA Research

November has lived up to its reputation of kicking off the two-month stretch of seasonal optimism. In addition, seasonal optimism typically adds to the market’s returns during the final month of the year, explains analyst Sam Stovall in CFRA Research's flagship newsletter The Outlook.

Indeed, since 1945, the S&P 500 posted its third-best average return in December (rising an average 1.5%), accompanied by the highest frequency of advance (up 73% of the time), and lowest level of volatility (23% below the average for the remaining 11 months). What’s more, post-election Decembers saw a 10-percentage point improvement in the frequency of advance.

Small caps have typically ended the year on even firmer footing, as the Russell 2000 recorded its second-highest average return in December (+2.2%), highest frequency of advance (76%), and second-lowest level of volatility (stats since 1979).

In addition, since 1995, all sizes, styles, and sectors within the S&P Composite 1500 recorded positive average returns in December, led by small caps and value stocks, as well as the communication services, real estate, and utilities sectors. Laggards included consumer staples, health care, and information technology.

Finally, 87% of the sub-industries that have been in existence for at least 20 years gained in price, led by fertilizers & agricultural chemicals, homebuilding, and home improvement retail, while the worst performers included computer & electronics retail, leisure products, and wireless telecom services.

In addition to seasonal optimism, the markets will likely benefit in the month ahead from the recent successful Phase 3 trials by three vaccine manufacturers, along with the expectation that some sort of stimulus agreement will be announced before yearend.

Representative companies from December’s best S&P 1500 sub-industries are: FMC Corp. (FMC), D. R. Horton (DHI), Home Depot (HD), Akamai Technologies (AKAM), Fox Corp. (FOXA), Patterson UTI Energy (PTEN), Arconic Corp. (ARNC), and Cooper Tire & Rubber (CTB).

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