A December to Remember?

As most of you know, I began my career working as an investment professional on Wall Street.

I have always enjoyed writing and being involved at some level. At university, I was the editor-in-chief of the second-largest newspaper on campus, and I also worked as an editor for the Wharton Journal.

Once I began running my own funds, we took great pride in our investor communications. We wrote extensive and detailed letters every month and every quarter. I am told that they were the favorite amongst many of our investors.

Before joining my partner Whitney Tilson a half-decade ago at Empire Financial Research, though, I had never really considered writing professionally.

Once Whitney explained the business to me – I was INSTANTLY sold. I absolutely loved (and LOVE) the idea of bringing my decades of experience to regular folks.

One interesting development of my writing transition is that I had yet to read any other newsletters before starting to write my newsletter.

Not because I was a "snob" or anything but because I was always focused on reading research that was very specific to our positions and portfolios.

When Whitney explained the business to me, though, I went out and read hundreds of letters from places like Agora Financial, Stansberry Research, and many others.

Very quickly, I was blown away! Wow, I had really been missing out.

There is some incredible work being done out there. Research, analysis, philosophy, analytics, etc. – some great writers are out there. None of whom I knew almost anything about previously.

Now, though, I have a handful whom I follow religiously.

One of those is Ryan Detrick. Ryan is the Chief Market Strategist of Carson Group. Carson provides various financial services and technology to financial advisors and investors.

Regular readers will recognize his name as we quote his work often here in HX Daily as well as on our social media.

Today, we will share some recent insights he posted about the month of December and year-end. We wanted, however, to give him special recognition for his great work.

If you do not follow him, you can sign up for this free newsletter here or follow him on X/Twitter here.

Don’t miss out on his great work!

Here are a couple of charts he shared recently about the next month…

We all know about seasonality. Professional money managers are highly motivated to see the stock market up into year-end. Remember that many of them are compensated on their year-end performance.

That doesn’t make any real logical or financial sense, but it is the way that it works.

The result is that December is the month MOST likely to end up positive. Going back to 1950, it has produced positive returns (an average of +1.5%) almost 75% of the time.

This compares to a roughly 60% chance that the stock market is higher in any given month. Here is the table Ryan shared…

This impact is even more potent during election years. The probability is over 83% - which is incredible.

Why do we think the likelihood is even more likely in an election year?

It is impossible to know for sure, but investors are likely hesitant to over-invest until they know the result of the election. This leaves extra buying power on the sidelines for December.

An even more powerful impact is how the stock market performs in December if it is up a lot going into the month. Here is that table from Ryan…

Looking back across the last ten times that the S&P 500 was +20% or more going into December, it was higher all but one of those times. The one time it was down (1996) it was down only a little more than -2%.

We say this often about the overall stock market and individual stocks – strength begets strength.

There is strong psychology behind why this is true, and we will talk about it in next week's HX Daily.

The final chart we are going to share from Ryan does not have to do with year-end but rather how the market performs the following year.

Most investors would think that if we see two strong years in a row (up +20% or more), we should expect the market to take a breather the following year.

Here is the data from Rayn showing all the times the S&P 500 has been +20% or more for two years in a row going back to 1950…

The stock market is higher the following year three-quarters of the time. The average return is also quite strong (+12%) and the two down years (1977 and 2000) were down less than -10%.

We have to admit that we found this data surprising also, but it comes back to our point above – strength begets strength.

If we are in a stock market that is strong enough to propel the market higher more than +20% two years in a row, then there is a good chance (75% in fact) that those conditions will maintain themselves.

We want to thank Ryan (and Carson) for their outstanding work and encourage you to check them out.