Since 1950, December has been the best month of the year for the S&P 500, and second best for the Dow Jones Industrial Average and Nasdaq Composite Index.
Historically, it's also Wall Street's only "Free Lunch" before Christmas, when investors tend to close out their losing positions for tax purposes, often sending these stocks to "bargain" levels.
According to the , the "Santa Claus Rally" comes to Wall Street almost every year, pushing stocks higher during the last five days of the year and the first two in January. When Santa fails to show, however, the market tends to trend lower.
This month, the S&P 500 is down about 1.5 percent, on track for its worst monthly performance since September, when it fell 7 percent.
The NASDAQ and Dow industrials are also on pace for their worst monthly loss since September, down 3 and 0.08 percent, respectively.
When November is a negative month, however, all three major averages tend to uptick in December.
In the past 11 years, the Dow industrial average posted a gain of 1.37 percent in December, while the S&P 500 and Nasdaq have averaged returns of 1.2 percent and 0.44 percent, respectively.
The table below highlights the in December, compared to its returns in other months. Since 2000, December has been the index’s third best month.
Among the major S&P 500 sectors, material, energy, and utility companies have performed the best in December, with average gains greater than 2.8 percent, respectively.
Historic Performance in December
Dow Jones Industrial Average since 1896:
- On average, the Dow has gained 1.4 percent during December
- Up 71 percent of the time
- The best December was in 1903, when it rose 10.78 percent
- The worst December was in 1931, when it fell -17.01 percent
- On average, the Dow industrial average has increased 2.02 percent during December when November was a negative month, up 75 percent of the time
S&P 500 Index since 1928:
- On average, the S&P 500 has gained 1.45 percent during December
- Up 73 percent of the time
- The best December was in 1991, when the index rose 11.16 percent
- The worst December was in 1931, when the index fell -13.06 percent
- On average, the S&P 500 has increased 1.86 percent during December when November was a negative month, up 80 percent of the time
NASDAQ Composite Index since 1971:
- On average, the Nasdaq index has gained 2.1 percent during December
- Up 60 percent of the time
- The best December was in 1999, when the index rose 21.98 percent
- The worst December was in 2002, when the index fell -9.69 percent
- On average, the Nasdaq index has increased 2.29 percent during December when November was a negative month, up 64 percent of the time
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