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December is Best Month for Gains

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December is best for gains, historically.  Uncertainty about tax cuts.  What to do now?

Month Avg. S&P 500 Returns
Jan +1.00%
Feb -0.20%
Mar +1.20%
Apr +1.50%
May +0.40%
Jun +0.10%
Jul +0.90%
Aug +0.10%
Sep -0.60%
Oct +0.60%
Nov +1.60%
Dec +1.65%
Average +0.70%

December has been the number one month for stock returns for the S&P 500 index since 1950, according to the 2011 edition of the Stock Trader’s Almanac.  The large company stock index has posted average gains of 1.65% in December.  And the consistency of gains in December is also impressive, with gains 77% of the time since World War II, vs. 59% for all 12 months.

The market’s ability to do well in December is due in part to the tendency of investors to stop viewing the market with a short-term perspective, but instead using the end of the year to look at opportunities in stocks over a longer time period, according to S&P.  The fact the winning pattern has been consistent feeds on itself, and investors buy stocks so as not to miss out on the rally.

Will 2010 follow this pattern?  Will economic data continue to come in better-than-expected?  Will debt problems in Europe and geopolitical risks in Korea overshadow things?  Perhaps most importantly, will uncertainty surrounding the U.S. tax cuts spark a mad sell-off?

The truth is, none of us can know for sure.  But we can take prudent steps to lock in any profits.


Source:  2011 Stock Trader’s Almanac.  January 1950 to April 2010

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.