Company / Analytics

Analytics, 03 December 2021

How stocks will perform in December and 2022

Investors have been gauging how the market will look like in December, especially given the pile of risks as the year comes to an end. Historically, November and December have been the S&P 500’s second-and third-best months of the year since 1950, with the index rising an average of 1.7% and 1.5%, respectively, according to the Stock Trader’s Almanac.

But will this year’s December continue its historical trend of strong stock performance, even as markets face worries over the Omicron coronavirus variant and a more hawkish Federal Reserve?

Analysts expect December to continue its strong historical performance. They also observed, in a recent Reuters poll, that global markets will shake off their recent weakness and rise over the next 12 months at a more tempered pace than this year’s rally. There is also a likelihood of a market correction in the next six months.

What to expect in December for U.S. Stocks?

November and December have been the S&P 500’s second and third best months of the year since 1950, with the index rising an average of 1.7% and 1.5%, respectively, according to the Stock Trader’s Almanac.

But a pile-up of risks, including concerns over the economic impact of the Omicron coronavirus variant and a more hawkish Federal Reserve, have some investors worried whether December will continue its historical trend of strong stock performance. Concerns over the Omicron variant have derailed November’s gains this year while the Feds stand on monetary policy in the face of surging inflation have left the S&P 500 index with a 0.8% loss for the month. Still, the S&P 500 remains up 21.6% so far this year and at near-record highs.

While the risks are unlikely to dissipate anytime soon, stocks may still finish the year on a strong note, if historical performance is any guide. The S&P has notched a positive return in December 74% of the time since 1928, more than in any other month, according to data from Bespoke Investment Group.

A weaker November has only bolstered that trend, if performance over the rest of the year has been robust: This year marks the 10th time the S&P 500 was down in November but up more than 10% for the year, the firm’s data showed. In the nine prior years when this occurred, stocks finished December with a gain, according to Bespoke.

December’s gains tend to be even more positive when the S&P 500 has a strong first 11 months of the year – which has been the experience this year. Since 1950, the index has gained an average of 1.7% in December when the S&P 500 has climbed at least 20% in the rest of the year, compared with an average of 1.5% for December overall, according to Detrick.

Stocks tumbled on the news that that the Fed will discuss speeding up its taper of monthly bond purchases at its upcoming policy meeting in December in the face of surging inflation.

Investors should market volatility as expectations as monetary policy changes. In particular, policy changes would impact technology stocks whose outsize weighting in the S&P 500 helped send the index to record highs this year.

Which stocks have performed best in the S&P 500 this year?

Some of the stocks in the S&P 500 that have performed best this year, measured by year-to-date performance can be found here. They range from technology to healthcare and construction. The collection does not imply that these stocks are necessarily recommended for a buy, as it is not easy to predict their performance. Similarly, the best stocks for your portfolio aren’t necessarily the best stocks for someone else’s portfolio.

How will stocks perform in 2022?

This is a question many investors are asking. A recent Reuters poll of equity analysts found that analysts believe stocks will shake off their recent weakness and rise over the next 12 months but at a more tempered pace than this year’s rally. The poll also noted a likelihood of a market correction in the next six months.

Some analysts also reckoned that flight to safe assets and heightened volatility suggests markets may be in for a bumpier ride in the short run. Indeed, when asked if a correction in their local equity market was likely, about three-quarters of respondents - 79 of 106 - in a global poll covering major indexes from over a dozen countries said Yes.

The broader poll of over 150 equity analysts around the world taken Nov. 15 to Dec. 1 showed most indexes bouncing back from the current downtrend and touching new highs by the end-2022. Of the 17 major indexes polled on, 10 were expected to surpass their lifetime highs over the next 12 months, with five reaching that milestone as early as mid-2022.

Driven by earnings and economic growth, the benchmark S&P 500 index(.SPX) will extend this year’s rally and gain 7.5% between now and end-2022 to finish at 4,910. Meanwhile, the pan-European STOXX 600(.STOXX) is forecast to rise 7% and reach 500 points by July, 10 points above its lifetime peak hit on Nov. 17. India’s BSE Sensex(.BSESN) was expected to falter in the near term but recoup its current losses and hit a high of 63,000 by the end of next year. Underpinned by a solid corporate outlook, Japan’s Nikkei share average index was expected to reach 31,000 by June 2022, around an 11% gain from Tuesday’s close.

Despite scaling new peaks, the majority of the 17 global indices polled on were forecast to neither repeat nor surpass this year’s strong performance next year. When asked to give their outlook on corporate earnings in their local markets over the coming six months, over 85% of strategists polled, 79 of 91, said they expected earnings to improve.

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