If the S&P 500 can squeeze out a few more points, that will be seven consecutive weeks of gains. Year-to-date, the S&P 500 is up 26%.
The yearly chart looks fantastic, but perhaps overbought.
S&P 500 yearly chart
Intuitively, it makes sense to worry about stocks. You expect hedge funds to lock in profits at some point and shut down. As Larry Fink warned, pension funds may also sell stocks and buy bonds to rebalance.
The US Thanksgiving holiday is next week and that marks the unofficial beginning of the end (of the year). Intuitively, it feels like a good time to clear out, or even to short risk trades (perhaps fight the moves in the yen crosses?).
What does history tell us?
This isn’t the first year where stocks have had a big run. Here are the best one-year performances in the S&P 500:
- 1954, +45.02%
- 1958, +38.06%
- 1995, +34.11%
- 1975, +31.55%
- 1997, +31.01%
In four of those five years the S&P 500 gained in December. The exception was 1975 where the index lost 1.15% then went on to an 11.8% rally in January. The average gain for Decembers in those five years was 2.7%.
I don’t like to fall in love with historical data because if the Fed tapers in December you can toss every other bit of news and information out the window but the calendar alone is no reason to sell.
