December is usually a strong month for stocks, even after historic November rallies
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We are excited to announce phase three of the Nasdaq Dorsey Wright Model Builder with the launch of Matrix and FSM-based Relative Strength (RS) Testing Service. As part of this launch, we are granting you free access to the Service for the remainder of 2020. The tool is designed to help you more easily design, test, implement, and monitor custom models powered by the Nasdaq Dorsey Wright methodology. Through the end of December, be sure to join us each Thursday at 1 pm EST for a custom modeler demo presented by the analyst team.
11/12/2020: Matrix Model Builder Demo Replay- Click here
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December is historically a strong month for stocks (and the momentum factor), producing positive S&P 500 (SPX) returns in 46 of the past 62 years, the highest count of any other month. However, after a monumental rally for equities many wonder if there is any gas left in the tank for the popular benchmark. While we cannot know for sure, looking at Novembers past we do see that after a positive month December still closed in the black 73% of the time, on par with its raw average. This “win percentage” only drops slightly if we look at Novembers where SPX gained over 5%, as 67% of Decembers were still positive. Although one thing to keep in mind is that December has historically produced an average return of 1.39% since 1958, and following a positive or strongly positive (5%+) November the returns are slightly below the historic monthly average.
When we increased our timeframe, a positive November also signaled a favorable path for equities in the new year with 80% of returns positive six months out. Note the medians are higher in each instance as well, indicating a positive skew. So if historical precedent decides to mean revert at the end of 2020, we could likely see another positive month but perhaps not to the same degree as usual.
