Analysis-History says strong December expectations for US stocks, despite Omicron and Fed worries

FILE PHOTO: A man wears a protective mask while walking on Wall Street during the coronavirus outbreak in New York
FILE PHOTO: A man wears a protective mask as he walks past the New York Stock Exchange at the corner of Wall and Broad Streets during the coronavirus outbreak in New York City, New York, U.S., March 13 2020. REUTERS / Lucas Jackson / Photo files

December 1, 2021

By Lewis Krauskopf

(Dan Tri) – A number of year-end risks have some investors assessing whether December will continue its historic trend of strong stock performance, even as the market faces worries. about the coronavirus variant Omicron and the more hawkish Federal Reserve.

November and December were the second and third best months of the year for the S&P 500 since 1950, with the index gaining an average of 1.7% and 1.5% respectively, according to Stock Trader’s Almanac.

This year, November’s gains were derailed in the final days, due to concerns about how the new COVID-19 variant could impact global growth and the Fed’s hawkish shift on Tuesday when it faced with rising inflation causing the index to lose 0.8% for the month. . The S&P 500 is up 21.6 percent so far this year and remains near record highs.

While those risks are unlikely to go away anytime soon, stocks could still end the year on a strong footing, if historical development is any guide.

S&P has recorded a positive return in December of 74% since 1928, more than any other month, according to data from Bespoke Investment Group, according to data from Bespoke Investment Group.

The company’s data showing this year’s weaker November only reinforces that trend, if performance for the rest of the year is good: This year marks the 10th time the S&P 500 has fallen in May. 11 but up more than 10% for the year, company data shows. In the nine years before this happened, the stock ended December with gains, according to Bespoke.

George Peakes, macro strategist at Bespoke, told Reuters: “Momentum is definitely a factor. “If stocks go up all year and people are underweight and chasing, they might want to add to their positions before the end of the year.”

According to Ryan Detrick, director of market strategy at LPL Financial, December’s gains tend to be even more positive as the S&P 500 has had a strong first 11 months of the year.

Since 1950, the index has averaged 1.7% gain in December as the S&P 500 rallied at least 20% for the rest of the year, compared with the 1.5% December average overall, according to the S&P 500. Detrick.

The market may have cut their jobs this time around.

The Cboe Volatility Index, known as Wall Street’s fear gauge, on Tuesday climbed to levels seen in the Omicron-powered sell-off last week after Fed Chairman Jerome Powell told Congress that The central bank will likely discuss increasing the pace of monthly bond purchases in line with its forthcoming policy response in the face of rising inflation. Stocks tumbled on the news, while Treasury yields rose.

“Given the potential changes in policy, market participants should expect additional market volatility in uncharted territory,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. this discovery,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in a recent note.

Expectations for a more hawkish Fed could be an unwelcome development for the tech stocks that have outperformed the S&P 500 that have helped send the index to record highs this year.

Rising Treasury yields – which typically follow expectations of more aggressive policy from the Fed – reduce the attractiveness of stocks for some investors and may even weigh on stocks with overvalued, as they threaten to erode their long-term cash flow value.

The S&P 500 information technology sector is trading at 27.5 times earnings estimates 12 months ago versus the historical average of 20.8 times, according to Refinitiv Datastream.

Investors are also trying to gauge the potential severity and severity of the Omicron variant, with Goldman Sachs charting out four scenarios for how the stress could spread and its potential impact. it for global growth.

The bank said a “decline in value” scenario, in which a massive wave of infections leads to shutdowns, could slow global growth to 2% in the first quarter of 2022, 2.5 percent lower. percentage points from the current forecast.

However, many investors believe the stock will continue to appreciate.

“The market has been looking for a reason to sell off for quite some time,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions. “However, strong corporate earnings and the possibility of an expanding economy should keep the stock market from falling significantly from here.”

(Reporting by Lewis Krauskopf; Additional reporting by David Randall and Ira Iosebashvili; Writing by Ira Iosebashvili; Editing by Leslie Adler) Analysis-History says strong December expectations for US stocks, despite Omicron and Fed worries

Bobby Allyn

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