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Market Strategists Say Odds Favor Decent December

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History suggests that investors have reason to cheer about the month ahead.

Specifically, according to S&P’s Sam Stovall, the S&P 500 has posted its strongest average monthly performance in December, at least since 1945, rising 1.7% on average versus an average 0.66% for all 12 months. Since 1929, December has been the second-best month, rising 1.4% on average versus 0.55% for all months.

The frequency with which the market posted a gain in December has been favorable at 77% since WWII versus 59% for all 12 months.

Of course, lately, this sort of seasonal analysis has come under increasingly sharp criticism in the financial press. The Wall Street Journal, for instance, points out that the Fed’s $600 billion injection of cash into the financial system has upended a host of time-honored seasonal patterns:

“Take August. It is always a good month—well, mostly always. But not this year: The Dow Jones Industrial Average dropped 4.3% to notch its worst August in a decade.

September? That is known to be far and away the worst month of the year. Except in 2010, when it soared 10.4% for the best September since 1939.

And October, that is the scary month, right? Just look at 1929, 1987 and 2008. But not this time. October gave us a tidy 3.1% gain.

The list goes on. November ended virtually flat, thwarting two truisms in one: that the month is typically a strong one and that markets usually rally after an election (this year's was on Nov. 2).”

But Stovall begs to differ. He believes these reporters are responding to erroneous assumptions, as they look for history to predict rather than warn. They assume, he says, that history is meant to be advice to the timer rather than assurance to the “Buy & Holder.”

History is most effectively leveraged as a warning to the wary who may be inclined to bail out of their equity positions should the market encounter unexpected turbulence, says Stovall.

“By being forewarned, these highly emotional investors are better prepared to disregard downside volatility during these traditionally tempestuous periods, thereby resisting the urge to sell, and sticking to their overall investment game plan,” he says. “As a result, market history helps the highly emotional investor neutralize the biggest threat to their portfolio’s long-term success: themselves.”

In sum: history offers no guarantees, Stovall says, but does deliver reassurances.
POSITION:  No positions in stocks mentioned.