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Will the Stock Market Have a Good December? Don’t Count on a Santa Rally.

“The Santa rally is on thin ice,” says one market observer. The S&P 500 has already dropped 5% in December, despite the month’s reputation for gains.

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Santa Claus dropped off gifts early this year—before Halloween, in fact—raising questions if there are any left unopened for the market before the New Year.

S&P 500
gained 8% and 5.4% in October and November, respectively, but December kicked off with the index notching a five-day losing streak. Market strategists don’t expect to see the trend soon reverse, essentially dashing hopes of a Santa Claus rally.

“I’d say the Santa Claus rally is on thin ice, not to mix metaphors too egregiously,” Nick Colas, co-founder at DataTrek Research, told Barron’s. With three weeks left in the year, it is possible that markets can tick down further as investors sell stocks in the red to book losses for tax purposes. Three weeks also leaves plenty of time for traders to get spooked by recession talk from Federal Reserve officials, business executives, and strategists.

Already, the market will have a tough time digging itself out of this month’s hole, as the S&P 500 has shed roughly 5% so far this month. That drop so far defies December’s historic trend of delivering positive returns with a 73% “win rate,” and average gains for the index of 1.4%, according to data from Yardeni Research.

For starters, the
Cboe Volatility Index
(VIX) is coming off a trough, and stands at 22—well below a high of 36.5 set in March—but nonetheless still at a level that strategists at DataTrek associate with markets that have become too optimistic. Given that backdrop, the team has a “lighten up when the VIX gets to 20” rule to reduce the risk of being too exposed to equities in a down market.

“December could end up being an up month (as it so often is), but there may be better entry points as the VIX gets closer to 28,” Colas wrote in a recent note.

Other areas of the market also point to weakness. The tech-weighted
Nasdaq Composite
just notched its worst December start since 1975, according to Bespoke Investment Group. It is also on its 264th trading day without notching a record high—its seventh-longest streak since inception. 

That is not the only area in decline. Energy—one of the saviors of the market this year—is down 6.5% this month while consumer discretionary, financials, technology, and communication services also dropped by more than 4%. Finding winners over the next few weeks at a time when nothing seems to be working will be a challenge.

Of course, markets can be frustratingly unpredictable. But with signs pointing to a negative December, investors likely won’t mind if things actually swing in the other direction. The next week brings a lot of data for Wall Street to chew on and opportunities for upside.

The Federal Reserve will conclude its two-day meeting on Wednesday and any hints from Chair Jerome Powell that the Fed is easing up on its tightening cycle will likely be welcomed by the market. There’s also inflation data on Tuesday, and retail sales figures on Thursday. 

That said, investors may want to tread carefully until the New Year.

Write to Carleton English at


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