In November of this year, the US stock market achieved its second-best performance since 1980. Some market participants predict that with support from technical and seasonal factors, the crazy upward trend in the US stock market will continue in December.
Will US stocks continue to rise in December?
In November of this year, the S&P 500 index rose by a cumulative 8.92%, achieving its best performance for November since 1980.
Last week, during the last week of November, there was a slight pause in the upward momentum of US stocks. However, many market participants believe that this actually accumulated momentum for further gains in December.
The S&P 500 index only rose by 0.8% last week, marking its smallest increase in five consecutive weeks; at the same time, last week’s daily average volatility was only 0.3%, the narrowest it has been in six months. In addition, on Friday of last week, the CBOE Volatility Index (VIX) fell to its lowest level this year.
For those who are bullish on the stock market, the slowdown in upward momentum for US stocks last week indicates that there is currently no excessive excitement commonly seen before a crash.
Frank Cappelleri, founder of CappThesis LLC stated:
“The market can eliminate overbought conditions through price declines or time passing; so far, as time has passed by now we have seen some digestion occur within an overbought condition… After such strong gains throughout early-November following October’s breakout rally above resistance levels near all-time highs…the temporary deceleration should be viewed as constructive.”
Seasonal factors also strengthen bullish confidence
Based on historical performance data analysis shows that large-scale sell-offs are unlikely to occur in U.S. stocks during December each year because portfolio managers tend to buy well-performing stocks before year-end to improve fund positions.
Driven by these seasonal factors, the last five trading days of December to the beginning of the new year usually see strong performance in U.S. stocks.
In addition, recent trends among many U.S. corporate executives can also strengthen bullish confidence in U.S. stocks.
Data compiled by Washington Service shows that U.S. corporate executives bought more stocks in November, pushing the buy/sell ratio to its highest level in six months.
Risks still worth noting for US stocks
Of course, there are still many risks facing bullish investors in US stocks at present.
Firstly, the US economy is weakening: The ISM Manufacturing Purchasing Managers’ Index for November was announced last week and has contracted for 13 consecutive months – however, this also strengthens market expectations of a rate cut by the Federal Reserve.
Another risk is that most of this year’s gains in US stocks have been driven by a small number of individual stocks. Data compiled by Societe Generale shows that this has been a year with historically few individual stocks achieving annual gains exceeding 15% on the US stock market.