Market's gifts come bubble-wrapped this year

Investors typically have themselves a merry little December, even after returns have been bright.

By MSN Money Partner Nov 27, 2013 1:42PM

Santa Claus © Tetra Images/JupiterimagesMarketWatchBy Jonathan Burton

 

Looks like the Santa Claus rally is coming to town.

 

U.S. stock investors typically have themselves a merry little December, even after market returns have been bright, according to research from S&P Capital IQ. Since 1945, whenever the Standard & Poor's 500-stock index ($INX) has gained 15 percent or more for the year through November, the index rose 2.1 percent on average in December better than 70 percent of the time, says Sam Stovall, the firm's chief equity strategist.

 

If 2013 mirrors this pattern, money managers won't move now to lock in those stunning S&P 500 year-to-date gains — currently topping 26 percent. Instead, they'll dismiss the naysayers' bubble concerns as blather and instead will let their winners ride, Stovall predicts.

 

"December ranks as the best performing month for the S&P 500, whether you look back to 1990, 1970, 1945, or 1900," Stovall notes.

 

In fact, since World War II December has been the S&P 500′s best-performing month and its least volatile. The benchmark U.S. stock index rose in price during 78 percent of all Decembers since 1945, versus an average 59 percent for all months and just 45 percent for September, according to S&P.

 

As for years resembling this one, when the S&P 500 is up 20 percent or more in the first 11 months of the year, December's average return was 1.8 percent with an increase 73 percent of the time.

 

The December Effect also applies to the 10 S&P 500 industry sectors. Since 1990, when a sector gained 15 percent or more, December's performance was most often positive. The best result was for consumer stocks: Consumer staples have posted an average 5.2 percent advance in December, while consumer discretionary saw an average 3.2 percent advance in the year's final month. The weakest sector was energy, which rose 1.3 percent on average.

 

This year so far, only telecom and utilities are up less than 15 percent.

 

If history plays out, Stovall says, "investors will not take the rest of the year off, and that the S&P 500 and eight of its sectors have a very good chance of adding to their already impressive results through the remainder of the year."

 

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