The recent Trump Rally in the stock market has been surprising to many. But given the time of year, it shouldn’t come as such a surprise. Election year or not, this is always the best time to invest.
November and December are typically the two best months to buy stocks. In the last five years (not including this November), the S&P 500 has posted an average gain of 1.5% in November and December, better than any other two-month stretch. Last year was the only time since the recession that stocks actually fell in the year’s final two months.
The November and December trend goes back much further than that: since 1950, December has been the best time to invest in the S&P 500, with an average gain of 1.6% in the year’s final month. November is just behind it at 1.5%, the third-best month on average since 1950.
First, let me start with the standard disclaimer (all together now): Past performance is not indicative of future results. But trends are telling, and 66 years of strong performance is a pretty good trend.
The main reason why November/December is the best time to invest is fairly obvious: the holiday shopping season provides an annual jolt for the U.S. economy, and that consumer confidence translates into bullish sentiment on Wall Street. This year, there’s a little extra reason to be bullish.
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For one, the chart is already trending that way. The S&P 500 is up nearly 4% in November, breaching the 2,200 mark for the first time ever. The Dow and the Nasdaq are also hovering near new all-time highs.
Another reason is that early returns on Black Friday and Cyber Monday retail sales look positive, and that comes on the heels of a particularly strong September and October for retailers.
And then there’s the Trump factor, which Wall Street is still viewing as a good thing for stocks—particularly those in the financial, energy and infrastructure sectors.
Here at Cabot Wealth, all of our advisories are now bullish. Mike Cintolo, our resident growth expert and chief analyst of our Cabot Growth Investor and Cabot Top Ten Trader advisories, says that “the backdrop for a major market rally is as positive as it’s been in a very long time.”
And it’s not just large caps that have turned positive. Small cap stocks are on a torrid pace. The S&P 600 Small Cap Index is up nearly 13% this month, blowing well past record highs.
And again, it never hurts to use history as your guide: Since 1979, small caps have actually outpaced the S&P in November and December, with average gains of 1.8% and 2.8%, respectively.
Any way you slice it, these two months are the best time to invest in stocks. January could bring more volatility and uncertainty, particularly once Donald Trump actually takes office, but November and December is party time on Wall Street. So if you’re looking to make a quick buck to help pay for all that Christmas or Hanukkah shopping, you might want to buy a few growth stocks now and see where they are by the time the ball drops in Times Square.
