The bullish December that stock investors often enjoy never met a sovereign-debt crisis like this.
Europe’s persistent debt problems, which have whipped U.S. stocks for months, show few signs of abating, and have left Wall Street’s year-end stock-index targets all but out of reach.
That is true even though December is historically the second-best month of the year for stocks after July. In addition, U.S. markets so far only have suffered limited damage from the market’s other bogey-Washington’s deficit-cutting impasse.
Most strategists are closely watching the march higher in European-bond yields as worries persist that an economic slowdown in Europe could pre-empt the U.S. economic recovery.
“Seasonally, the market does have a tailwind, but whether it’s going to ride that wind depends on whether Europe continues to deteriorate,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co.
Over a span of more than eight decades, the Standard & Poor’s 500-stock index has added an average of 1.46% in the final month of the year, according to Howard Silverblatt, senior index analyst for S&P Indices.
In December, investors tend to buy stocks to revamp their portfolios for the new year, and to prepare for some of the best months for the market seasonally. April and January are the third- and fourth-strongest months for the S&P 500, respectively. Stock investors usually don’t want to be left behind.
The year’s final month also tends to feature what is commonly called the Santa Claus rally, consisting of a sharp upswing in the last several trading sessions of the year and the first few days of the new year.
Next month, the turn of the year occurs over a weekend, with the final 2011 trading day on Friday, Dec. 30. Equities markets are closed on Monday, Jan. 2 and reopen the following day.
Since 1950, the five days ending the year and the two kicking off the new year have averaged a 1.5% gain in the S&P 500, according to the Stock Trader’s Almanac. If Santa fails to show over those seven sessions, it often presages a difficult year for stocks.
