The S&P 500 has struggled to make meaningful gains this year amid slowing profit growth, geopolitical unrest and uncertainty over a Fed rate hike. But if history is any indication, we could be in for a big year-end rally.
“December is the only month since 1928 that has never posted the worst performance of the year,” Ari Wald told CNBC’s “Trading Nation” on Monday. “What this shows is that there doesn’t tend to be extreme downside volatility in December.”
In fact, according to Wald, seasonally December tends to be one of the best-performing months of the year. And he sees signs of even more strength as the month kicks off.
“What we also found out is when you start the month above the 200-day moving average and in an uptrend the performance is even better,” added Oppenheimer’s head of technical analysis. Wald noted that since 1960, when the S&P 500 is above its 200-day moving average heading into the 12th month, the index has averaged a near 2 percent gain and has traded positively 80 percent of the time.
“Seasonally with this positive trend it does make for a backdrop into year-end,” he added. “I think near-term gains can continue and then some volatility in the first quarter of next year once that seasonal strength fades.”
As the countdown to the December Fed meeting is officially on, Erin Gibbs of S&P Investment Advisory also expects to see stocks pick up speed through the end of the year.
“This year, we believe the odds again point to a favorable finale, as the expectation that the Fed will finally start its rate-tightening program will lift the veil of uncertainty,” she said Monday.
Once the U.S. central bank meeting is behind us, Gibbs said she expects investors to begin focusing on the 8 percent earnings growth expected for all of 2016, which should also give stocks a boost.
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