Why December is a win-win for stocks

S&P will jump 11% in 2022 despite omicron concerns: Market expert

UBS GWM Head of America’s Equities David Lefkowitz discusses his outlook for stocks and the possibility of future gains.

Investors are getting into the holiday spirit when it comes to U.S. stocks, which are climbing back toward record highs, which is the norm this time of year. 

TickerSecurityLastChangeChange %
I:DJIDOW JONES AVERAGES35646.2+419.17+1.19%
SP500S&P 5004675.49+83.82+1.83%
I:COMPNASDAQ COMPOSITE INDEX15641.261072+416.11+2.73%

The so-called Santa Claus rally, when stocks rise toward the end of December, historically helps produce top returns. 

The Dow Jones Industrial Average, the S&P 500 and the Russell 2000, which tracks smaller domestic companies, have ended higher in December more than any other month, according to Dow Jones Market Data Group. 

<strong>Average December Performance </strong>

  • Dow Jones Industrial Average: +1.35%, second to July
  • S&P 500: +1.32%, 3rd best month
  • Nasdaq Composite: +1.7%, 3rd best month
  • Russell 2000: +2.7%, the best average return

Source: Dow Jones Market Data Group 

These additional gains will add to what has been a robust year for equities, which may continue into next year thanks to "a lot of momentum in the economy," as described by UBS GWM Head of America’s Equities David Lefkowitz. 

<strong>2021 Stock Market Performance</strong>

  • Dow Jones Industrial Average: +17%
  • S&P 500: +25%
  • Nasdaq Composite: +21%
  • Russell 2000: +17%

Source: Through 12/6/21

"Consumers are in great shape, wages are rising, jobs are plentiful, cash is plentiful on consumer balance sheets, businesses are spending, and they are also making record profits," he said. 

Small caps, in particular, may continue to shine next year, according to Bank of America Equity & Quant Strategist Jill Carey Hall. 

"Small caps are more domestic, more exposed to the services spending recovery, bigger beneficiaries of capex/reshoring and are inexpensive vs. large caps," according to her recent research note. 

She also notes this group performs well in Federal Reserve-tightening cycles. "Small caps have historically outperformed leading into the first rate hike but lagged during tightening, suggesting more caution in 2H22 could be warranted." 

Traders are forecasting three rate hikes in 2022 with the first potentially as early as May, as tracked by the CME Fed Watch Tool. 

Fed officials will release their latest economic projections at their next policy-setting meeting, set for Dec. 14-15.

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