The Market Could Rally Big Soon

by Andrew Houghton and Nick Atkeson | 11.26.08
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Tis The Season For A Strong Market

November through April is when the market tends to show its best results.  As the saying goes, "sell in May and stay away" until November.  Almost all bear markets experienced their lows in October or early November.  The three-week period from mid-December to the first week of January is statistically one of the most bullish in the markets each year.

Shown below is a chart of the S&P 500 (SPX) for the past 20 years from the first trading day of December through the last trading day of January.  16 out of the past 20 years have shown positive returns with the average return over the 20 data points being positive 2.8%.

S&P 500 Seasonal Performance (SPX)

Year

Dec

Jan

% Return

1988

273.00

297.47

9.0%

1989

346.01

329.08

-4.9%

1990

322.23

343.93

6.7%

1991

375.11

409.53

9.2%

1992

431.36

442.52

2.6%

1993

461.93

481.61

4.3%

1994

453.55

470.42

3.7%

1995

605.37

636.02

5.1%

1996

757.02

786.16

3.8%

1997

955.40

1,001.27

4.8%

1998

1,163.63

1,273.00

9.4%

1999

1,388.91

1,394.46

0.4%

2000

1,314.95

1,366.01

3.9%

2001

1,139.45

1,130.20

-0.8%

2002

936.31

855.70

-8.6%

2003

1,058.20

1,135.26

7.3%

2004

1,173.78

1,193.19

1.7%

2005

1,249.48

1,270.84

1.7%

2006

1,400.63

1,448.39

3.4%

2007

1,479.63

1,378.55

-6.8%

 

What's Ahead for the Markets

Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.

Watching the Treasury's Actions

In the short-term, the government's bond auction is likely to be a key driver of stocks.

Treasury Auction Boosts Market

The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.

Credit Markets Point to Upturn

The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.

Market Cooling Down

The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.