Seasonal Strategies

December 2020 Market at a Glance


Bullish. December is now the number three S&P 500 and DJIA month since 1950, averaging gains of 1.5% on each index. It’s the top Russell 2000 (1979) month and third best for NASDAQ (1971). The “January Effect” of small-cap outperformance starts in mid-December. Santa’s Rally begins on Thursday December 24 and lasts until the second trading day of the New Year. In years when Santa Claus did not come to Wall Street, bear markets or sizable corrections have often materialized in the coming year.


Mixed. Vaccines are nearly ready, but distribution still remains a challenge. And as we await an approved vaccine, Covid-19 cases are surging, triggering new shutdowns and economic easing rollbacks around the country. As a result unemployment and weekly initial jobless claims remain elevated. The housing market remains firm, but the migration driving gains is likely to slow. Corporate earnings have largely held up in industries and businesses that remained/remain open. More importantly, the outlook continues to improve, and the market is rising because of this.


Breaking Out. DJIA, S&P 500 and Russell 2000 all broke out to new all-time closing highs in mid-November. NASDAQ’s Thanksgiving breakout is a bullish confirmation. NASDAQ was held back as traders and investors pulled back from this year’s pandemic success stocks in favor of names best positioned to benefit from a vaccine. Now that NASDAQ is included in the broad rally it could be an early indication that the rally is gaining momentum.


0 –  0.25%. As expected, the Fed’s November meeting announcement did take a back seat to election results as little new was said and no changes to policy were made. However, in the time since that meeting Treasury Secretary did announce that he did not intend to renew or extend the Fed’s Main Street Lending, municipal lending and corporate credit programs. They were and still are set to expire at the end of the year. All three programs were established as part of the Fed’s COVID-19 response earlier this year.


Elevated. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stood at 64.6%. Correction advisors stood at 18.2% while Bearish advisors were at 17.2% in the most current report from November 24. There was a brief dip in bullish sentiment at the end of October, but it did not stick as the market quickly rebounded. Historically, holiday and yearend cheer have translated into market gains and high levels of bullish sentiment so it would not be surprising to see the same again this year and possibly even higher levels of bulls as positive vaccine news breaks.