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Jeroen Blokland
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Jeroen Blokland works as a senior portfolio manager at Robeco, a prominent independent asset manager from the Netherlands. He manages several multi asset portfolios for both institutional and retail clients. He regularly writes columns for a Dutch financial website and has his own financial... More
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  • The Second-Half Of December Rally?

    There has been a lot of anxiety in recent days about what has happened to the 'end-of-the-year-rally'. At the time of writing the S&P 500 index (NYSEARCA:SPY) has lost 4% since the start of this month. So should we forget about this year's December rally?

    Well, to be honest, to make up a loss of 4%. in just a few remaining trading days, is quite a challenge. This year's first half of December represents the fourth biggest loss over that time span since 1974. Yet, if history is any lead, the worst could be behind us, at least for what December is concerned.

    In the table below I have calculated the returns on the S&P 500 index during the first half of December (which ends on December 16th), the second half of December (from the 17th until the end of the month). I also calculated the difference between the first and the second half return and the return for the whole of December.

    The results are shown in the table above. As the fourth column of the table shows, the return realized in the second half of December has consistently beat the return realized during de first half of December. The second half of December is also much more investor-friendly from an absolute return perspective. Since 1974, the second half of December has resulted in a negative return on the S&P 500 index only one in five years. That compares to a historical probability of a negative return during the first half of December of more than 40%. So when investors speak of the December rally, perhaps it's better to refer to the 'second-half-of-December' rally.

    The chart below again shows the return differential between the first and second half of December, including the most recent years. What stands out is that the return differential has been pretty outspoken in these recent years. Another interesting point to make is that in the last four years (also including 2014) the return in the first half of December has been consistently negative, while the return in the second half has been positive in all cases. Hence, at least based on history, the better half of December has yet to commence.

    (click to enlarge)

    Oh, in case you were wondering, the period between Christmas and New Year's is not characterized by a strong return pattern. Returns are in fact mostly flat.

    Dec 16 11:23 AM | Link | 1 Comment
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