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Stock Market's December Surge a Potential Springboard for a Bullish 2024

Published 12/11/2023, 09:44 PM
  • In pre-election years, the latter half of December shows strong historical performance.
  • A robust December for the S&P 500, with over +8% year-to-date gains, tends to precede an impressive bull run the following year.
  • Could this historical pattern repeat this year, with markets rallying now and kicking off a bullish 2024?
  • December, historically the third-best month of the year for the S&P 500 and the Dow Jones over the last 72 years, boasts average returns of +1.4% and +1.5%, respectively.

    Moreover, it secures the second-best month status for the Russell 2000 and the third-best for both the Nasdaq and the Russell 1000.

    Going into specifics, the latter half of the month has historically been much better for markets.

    In a pre-election year, December tends to outshine itself, delivering the following average gains:

    • Dow Jones: +2.7%, exhibiting an upward trend in 14 of the last 18 December months.
    • S&P 500: +2.9%
    • Nasdaq: +4.2%
    • Russell 1000: +2.9%
    • Russell 2000: +3%.

    Strong December Hints at a Bullish 2024 for Stocks

    It has been a great year for stock markets, both in Europe and the United States. The S&P 500, having gained over +8% year-to-date, is a commendable feat and has occurred 30 times in its history.

    What's intriguing is that in those 30 instances, the S&P 500 witnessed an average rise of +15.88% the following year.

    When the index nears the conclusion of the year after kicking off December with a yearly gain of +8% or more, in 90% of cases, this scenario foreshadows an impressive following year, characterized by average returns of almost +16%.

    While it's true that some may be concerned about the time since the index last hit new all-time highs, nearly a year ago on January 2, 2022, it's important to note that it is very close to its peak. So, maintaining calm and being patient is key.

    1st Gap: Undoubtedly, the classic S&P 500, composed of stocks with varying weights in the index, is significantly outpacing the S&P 500 equal weight, where all stocks carry equal weight.

    The 2023 difference in favor of the former over the latter is 14%. A historical look at both S&P 500 indexes, including dividends, reveals the following ranking of the greatest differences between them:

    • Year 1975: 17.4%
    • Year 2000: 18.7%
    • Year 2009: 19.8%
    • Year 1998: 16.4%
    • Year 2023: 14%

    2nd Gap: growth stocks are outperforming value stocks so far this year by 30%, the second-highest return on record since 1979 (only 2020 was higher).

    In 2022, value stocks outperformed growth stocks by 22%. In 2023, growth stocks outperformed value stocks by 30%.

    60/40 Portfolio Stages a Spectacular Comeback

    Twelve months after recording their worst year in history, traditional 60/40 portfolios have signed their best month in more than three decades.

    Their return is currently +9.6%, making November, according to Bank of America, the best month since December 1991.

    These portfolios consist of 60% stocks and 40% bonds. For this reason, they are also called balanced portfolios.

    Therefore, this type of portfolio is based on investing 60% of the capital in stocks, which, although they have a higher risk potential, also have a higher profitability potential, and 40% in bonds or fixed-income, assets with a lower revaluation potential but also lower risk.

    Swaps Show 40% Chance of Lower Interest Rates in March

    Friday's employment report showed a strengthening U.S. economy. Nonfarm payrolls rose by 199,000 last month, the unemployment rate fell to 3.7% and monthly wage growth beat market estimates. Meanwhile, consumer confidence rebounded sharply in early December, beating all forecasts.

    The S&P 500 posted its sixth consecutive week of gains, its longest winning streak since November 2019. Wall Street's fear gauge, the VIX, returned to pre-pandemic levels. United States 2-Year yields rose 12 basis points to 4.72%. Swap contracts now show a 40% probability of a March rate cut, up from 50% before the jobs data.

    Meanwhile, One of the Biggest Meme Investment Vehicles Is Going Down

    Roundhill Investments closes its Roundhill MEME ETF (NYSE:MEME) on Dec. 11 just two years after its debut. It was the first ETF to capitalize on the huge interest stoked in forums to invest in stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC).

    But the closing of this ETF is just one more in the sector. So far this year, 203 U.S. ETFs are being closed, according to Morningstar Direct. That's 38% more than the number of funds in 2022 and more than 180% over 2021.

    In addition, assets are down to just $2.7 billion. That means the administrator is only bringing in approximately 18,630 a year to manage it, based on the annual expense ratio of 0.69%. That's not enough to cover most funds' operating costs.

    But it has also been a loss for investors. Anyone who bought this ETF on Dec. 8, 2021, lost -58% of their money. And that's despite the fact that the ETF added new assets that are performing better. For example, it added Super Micro Computer (NASDAQ:SMCI) which is up +553% since the ETF's inception.

    But it does have some drags, such as AMC Entertainment (NYSE:AMC), which is down -98% since the fund's inception, and GameStop (NYSE:GME), which is down -69% since December 2021. Over 80% of the ETF's current positions are lower now than when the fund opened.

    Stock Market Rankings YTD:

    This is how the ranking of the world's main stock exchanges is going for the year:

    Investor sentiment (AAII)

    Bullish sentiment, i.e. expectations that stock prices will rise over the next six months, declined slightly to 47.3% but remains above its historical average of 37.5%.

    Bearish sentiment, i.e., expectations that stock prices will fall over the next six months, rose to 27.4% but remains below its historical average of 31%.


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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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