Hopes for the usual “Santa Claus rally” on Wall Street may have to be a bit tempered this year. That’s because November’s powerful rally is one tough act to follow.
“Because November was very very strong, it might end up stealing from Santa and we might end up having a weaker gain in December than we normally would,” Sam Stovall, chief market strategist at CFRA Research tells Yahoo Finance Live.
“I’d say we’re probably ready to digest some of these gains, and then I would regard that as a buying opportunity.”
If history is any guide, December is traditionally a strong month for stocks. Stovall says since 1945, the S&P 500 rose nearly 1.5% in all Decembers and advanced in price 73% of the time. But he warns that investors may want to manage their expectations and brace for a more subdued December.
“Whenever the S&P 500 gained 5% or more in November, which happened 14 times since 1945, December’s price rise and frequency of advance were below average,” says Stovall.
He points out that the Dow, S&P 500 and the small cap Russell 2000 index (^RUT) all recorded simultaneous record highs in November, a sign of investor exuberance that may be hard to sustain.
“History hints, but does not obviously guarantee, that in the next calendar month [after that scenario], the market goes nowhere and it’s a coin toss as to whether it’s up or down.”
Stovall still sees year-end gains for the market, mostly because of the breadth of the rally.
“It’s not just being driven by narrow behemoths. When you look, 95% of the near 150 sub-industries in the S&P 1500 are trading above both their 50 day and 200 day moving averages,” he says.
So, while investors may be banking on a soon-to-be-released Covid-19 vaccine to jumpstart the economy in 2021, history hints that this December’s return may be less dramatic as stocks catch their breath from their post-election sprint.
Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.