I hate to see the broad market flip over into the close like it did to start the week, but that high will probably not go down as the apex event for the year, says Jon Markman, growth-stock specialist and editor of Strategic Advantage.
The S&P 500 (SPX) is up a tremendous 24.3% in 2021. DataTrek Research studied how the next two-and-a-half weeks are likely to fare by looking at every December back to 1980 to learn when the S&P 500 usually peaks during this month. The short answer: volatility tends to fall, and US equities typically melt up as the month progresses and trading volumes lighten.
Specifics: The S&P 500 usually hits its high for December in the back half of the month. Over the last four decades, the index has peaked for the month of December between 12/16 and 12/31 during 61% of years, according to the DTR research. The S&P 500 has topped out for the month by mid-December during only 39% of years.
Getting more granular: During the month of December, the S&P 500 tends to peak during the last week or even the last day of the month. Since 1980, the S&P 500's December high happened during the last week of this month in almost half of the years, according to DTR research. The S&P has reached its December peak on the last day of the month during 12% of years over the last four decades.
This means the market is a little more likely to hit its high for the month in just the last week of December as it is for the entire first half of this month. The S&P 500 has only peaked for the month of December in its third week (roughly 12/16 – 12/26) a fifth of the time, the research shows.
Here’s what happened in December during years when the index had an annual total return of 20% or better. The S&P 500 has finished the year with an annual total return of +20% a third of the time since 1980. During over two-thirds of those years, the index peaked for the year in December. It hit its annual high in October or November during the remainder of those years. When it peaked in December for the year, it did so in the latter half of the month in almost all of those years (82% of the time). It peaked in the last week of December during nearly two-thirds (64%) of those years.
Essentially, in years with a strong double-digit return for the S&P 500 (+20 pct), the index tends to peak for the year in December. When it hits its annual high during this month, it tends to do so during the last week and often it is the very last day of the month (12/31 in this calendar year).
Bottom line, according to the DTR research: The S&P 500 will likely hit another record high later this month. Given typical seasonal patterns for December and the strength of returns thus far, precedence points to a peak during the last week of this year. This potential outcome also fits with recent history. The S&P 500 was up 31.2% and 18.0% in 2019 and 2020 respectively. During those two years, the index hit its high for the year on 12/27/19 and 12/31/20.
This research alone is not a reason to believe a high for the month will occur after Wednesday, but markets are made by humans and humans tend to do the same things over and over given similar psychological stimuli.
