Has the S&P Peaked for the Year?

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Has the S&P Peaked for the Year?

Did Friday mark this year’s high for the S&P 500? With the index up 24.3 percent year-to-date, that’s the question on most investors’ minds as they consider whether to lighten up and lock in this year’s strong gains or hope for a “Santa Claus” rally into year end. For greater insight into what we should expect for 2021’s last 3 weeks of trading, we looked at every December back to 1980 to pinpoint when the S&P usually peaks during this month. The reason: volatility tends to fall and US equities typically melt up as the month progresses and trading volumes lighten.

We have three points to this analysis today:

#1: The S&P 500 usually hits its high for December in the back half of the month.

  • Over the last 4 decades, the S&P has peaked for the month of December between 12/16 and 12/31 during 61 pct of years.
  • Alternatively, the S&P has topped out for the month by mid-December (12/15) during 39 pct of years.

Takeaway: history says the S&P has likely not hit its last record high for the year, given that we are not even mid-way through the month yet.

#2: During the month of December, the S&P tends to peak during the last week or even the last day of the month.

  • Since 1980, the S&P’s December high happened during the last week of this month in almost half (41 pct) of years.
  • The S&P has reached its December peak on the last day of the month during 12 pct of years over the last 4 decades.

Takeaway: the S&P is a little more likely to hit its high for the month in just the last week of December as it is for the entire first half of this month. Should the S&P keep rallying through mid-December, it will likely do so into the last week of this year. For example, the S&P has only peaked for the month of December in its third week (roughly 12/16 – 12/26) a fifth of the time.

#3: Given that the S&P’s performance is especially strong this year (+24 pct YTD), here’s what happened in December during years when the index had an annual total return of +20 pct:

  • The S&P has finished the year with an annual total return of +20 pct over a third (39 pct) of the time since 1980.
  • During over two-thirds (69 pct) of those years, the S&P peaked for the year in December. It hit its annual high in October or November during the remainder of those years.
  • When it peaked in December for the year, it did so in the latter half of the month in almost all of those years (82 pct of the time). It peaked in the last week of December (12/27 – 12/31) during nearly two-thirds (64 pct) of those years.

Takeaway: during years with a strong double-digit return for the S&P (+20 pct), the index tends to peak for the year in December like in 2021. When it hits its annual high during this month, it tends to do so during the last week and the modal observation is the last day of the month (12/31 in this calendar year).

Bottom line: history says the S&P will likely hit another record high later this month. Given typical seasonal patterns for December and the strength of returns thus far, these factors point to a peak during the last week of this year. This potential outcome also fits with recent history. Last week, we mentioned how 2021 will likely mark only the 10th time the S&P has generated 3 straight years of positive double-digit returns in the last +90 years. The S&P was up 31.2 pct and 18.0 pct on a total return basis in 2019 and 2020 respectively. During those two years, the index hit its high for the year on 12/27/19 and 12/31/20. While we would not make conclusions on this data alone, it does support our continued bullish stance on US equities.