EB Monthly Seasonality Report - December 2020
A Look Back At November 2020
Below are the 20 stocks that were favored for the month of November and how they performed from their October 31st close through their Friday, November 25th close:
13 of the 20 stocks outperformed both the SPY and QQQ during November thus far. The average gain of 13.71% outpaced the 11.38% and 11.00% gains on the SPY and QQQ, respectively.
URI was November's big winner and this is how its chart currently stacks up:
Industrials were among the November leaders and the XLI rose for the 12th consecutive year both on an absolute and relative basis. Check out this 12-year seasonality chart of the XLI:
Who says history doesn't repeat itself?
A Look Ahead At December 2020
S&P 500 Performance
There are pockets of historical strength and weakness for the S&P 500 during December. Here's the annualized performance breakdown within the month:
1st through 6th: +21.15%
7th through 15th: -12.22%
16th through 31st: +35.75%
Sector Performance
Before we look at individual stocks, let's get an overview of how the various sectors and industries tend to perform during the month of December:
Sector Heat Map:
The numbers reflect how much a sector, on average, outperforms or underperforms the S&P 500 over the past 20 years. The dark green shaded area shows significant outperformance (1.0 or greater). The light green shaded areas shows solid outperformance (from 0.5 to 1.0). The orange shaded area shows underperformance (-0.5 to -1.0). The red shaded area (none reflected above) shows significant underperformance (-1.0 or greater). Where there is no shading, there tends to be more neutral performance (-0.4 to 0.4).
Technology has a history of underperforming in December, having an average December return that is 0.7% below that of the S&P 500. Meanwhile, the defensive sectors tend to perform better than average in December, so looking at a few more conservative trades in the upcoming month makes sense from a historical perspective. Real estate has been the big December winner this century. Looking back over the past 13 years, the XLRE has risen in 11 of them and has averaged gaining 5.0% over this period:
Among the aggressive sectors, only communication services has a history of outperforming the S&P 500 by any significant margin, although both industrials and financials like the month of December as well.
Industry Performance
Here's the Heat Map for real estate industries for December through February:
If we combine December (3rd column) and January (1st column) relative performance, specialty REITs and real estate services have the best track record this century over the upcoming two months.
Outside of real estate, the following industry trends are worth noting for December:
Technology - renewable energy ($DWCREE) has outgained the S&P 500 by an average of 4.3% during December over the past 9 years.
Consumer discretionary - it seems a bit counterintuitive, but home construction ($DJUSHB) and home improvements ($DJUSHI) love the December/January period.
Communication services - internet stocks ($DJUSNS) tend to perform very well in December and January.
Industrials - During December, building materials & fixtures ($DJUSBD), commercial vehicles & trucks ($DJUSHR), and industrial suppliers ($DJUSDS) all outperform the S&P 500 by an average of 1% or more. If we look ahead to the next three months (December through February), aerospace ($DJUSAS) and defense ($DJUSDN) perform exceptionally well.
Financials - Mortgage finance ($DJUSMF), full line insurance ($DJUSIF), and life insurance ($DJUSIL) have strong December track records, but beware. January has historically been a very difficult month for financials, with one exception - specialty finance ($DJUSSP).
Health Care - biotechs ($DJUSBT) and pharmas ($DJUSPR) don't typically perform well the next few months. However, the rest of health care tends to outperform in December, especially medical equipment ($DJUSAM), which boasts a strong record in December:
Consumer staples - the only industry group that shows consistent strength over the next three months is drug retailers ($DJUSRD).
Utilities - no historical trends of significance.
Energy - coal ($DWCCOA) shows strong trends in December, but gives it all back in January, so there's little reliability, in my opinion. Oil equipment & services ($DJUSOI) does outperform the S&P 500 in each of the next three months, although January is its strongest month.
Materials - love the last two months of the year. November was strong as usual. December is strong, but not as strong historically as November. Primary December strength comes from aluminum ($DJUSAL), gold mining ($DJUSPM), mining ($DJUSMG), and steel ($DJUSST). Gold mining and steel are solid outperformers in each of the next three months.
Stock Performance
We've selected our Top 20 seasonal stocks for November from the S&P 500 and NASDAQ 100. Several names represent sectors and industry groups that have been discussed above. Others simply stand out in December on their own.
The stocks this month, in order of December return, are as follows:
WDC, LULU, LEN, AVGO, MOS, EQIX, NVDA, STX, CF, ARE, VTR, FOXA, NVR, MAS, ANTM, SLG, DE, SYK, REG, ZBH
A "Seasonality - December 2020" ChartList should be available for download on our website Monday morning. You must be a StockCharts.com Extra or Pro member to download our ChartLists.
Happy trading!
Tom