Late December Could Bring Tailwinds to Wall Street

Plus, the best and worst stocks to own right now

The end of the year has historically been the most bullish time for stocks by a long shot. The table below summarizes S&P 500 Index (SPX) returns by the first and second half of each month over the past 50 years. The second half of December has averaged a gain of 1.5%, while the next best time is the first half of July, with an average gain of 0.87%.

It’s also worth noting 78% of the returns have been positive in the second half of December, which is easily the highest percentage. The even better news is that we’re right at the end of one of the most bearish times of year, according to seasonality over the last 10 decades.

Below, I will unpack returns for the second half of December to fit the current market environment and list some individual stocks that have tended outperform this time of year.

What Late December May Have in Stock

It has been a rough year for stocks, with the SPX down just over 15% in 2022. The table below breaks down second half of December returns based on year-to-date returns through the first half of the month. Stocks have done well in the seven years in which the index was down double digits heading into the final couple of weeks of the year. In those years, the SPX averaged a gain of over 2%, with six of seven returns positive. 

The first half of December has usually not been good for stocks. That’s not a surprise, based on the first table breaking down returns by the half month. The SPX is down right around 1.5% since the end of November. When this has been the case, the index has historically averaged a return of more than 1.5% over the latter half of the month, with 90% of returns positive.

The second half of December has typically been so strong that even if you take the worst-case scenario in the table below (up less than 2% in the first half), the average return of 0.90% in the last half of the month would rank first amongst all other half months.

Best & Worst Stocks

The table below shows the best SPX stocks to own over the second half of December. I sorted this list first by the percentage of time the stock beat the SPX, then by average return. Union Pacific (UNP) is the only stock that beat the SPX every single year over the past decade.

Then there’s a list of worst stocks to own during this period. Despite the overall bullish market, these stocks have struggled over the holiday season. Meta Platforms (META), the parent company of Facebook, is notably on the list, beating the SPX only 20% of the time.