December Almanac & Vital Stats: Tepid Start, But Solid Finish
By: Jeffrey A. Hirsch & Christopher Mistal
November 17, 2022
December is the number three S&P 500 and Dow Jones Industrials month since 1950, averaging gains of 1.5% and 1.6% respectively. It’s the second-best Russell 2000 (1979) month and fourth best for NASDAQ (1971). It is also the third best month for Russell 1000 (1979). In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. However, the market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. When December is down it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks can pullback in the first half of the month.
[Midterm Year December Performance Table]
In the last eighteen midterm years, December’s rankings slip modestly to #5 DJIA (0.9%), #3 S&P 500 (1.2%) and #7 NASDAQ (–0.3% since 1974). Small caps, measured by the Russell 2000, also tend to soften in midterm Decembers. Since 1982, the Russell 2000 has lost ground just three times in ten midterm years in December. The average small cap gain in all ten years is 0.3%. Midterm December performance had been stronger prior to previously mentioned December 2018.
[December Seasonal Pattern Chart]
Trading in December is holiday-inspired and fueled by a buying bias throughout the month. However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins. December’s first trading day has been bearish for S&P 500 and Russell 1000 over the last 21 years. A modest rally through the fifth or sixth trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in and propel the indexes higher with a pause near month-end. Regardless, December is laden with market seasonality and important events. 
Small caps tend to start to outperform larger caps near the middle of the month (early January Effect) and our “Free Lunch” strategy is served from the offerings of stocks making new 52-week lows on Triple-Witching Friday. An Almanac Investor Alert will be sent prior to the open on December 19 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 23 and lasts until the second trading day of 2023. Average S&P 500 gains over this seven trading-day range since 1969 are a respectable 1.3%.
This is our first indicator for the market in the New Year. Years when the Santa Claus Rally (SCR) has failed to materialize are often flat or down. The last six times SCR (the last five trading days of the year and the first two trading days of the New Year) has not occurred were followed by three flat years (1994, 2004 and 2015) and two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
December Triple Witching Week is more favorable to the S&P 500 with Monday up thirteen of the last twenty-two years while Triple-Witching Friday is up twenty-six of the last forty years with an average 0.21% gain. The entire week has logged gains twenty-eight times in the last thirty-eight years. The week after December Triple Witching is the best of all weeks after Triple Witching for DJIA and is the only one with a clearly bullish bias, advancing in thirty of the last forty years. Small caps shine especially bright with a string of bullish days that runs from December 21 to 27.
Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (NASDAQ up eleven of the last fifteen). On the last trading day of the year, NASDAQ has been down in fifteen of the last twenty-two years after having been up twenty-nine years in a row from 1971 to 1999. DJIA, S&P 500, and Russell 1000 have also been struggling recently and exhibit a bearish bias over the last twenty-one years. Russell 2000’s record very closely resembles NASDAQ, gains every year from 1979 to 1999 and only six advances since.
[December 2022 Vital Stats Table]