December historically has been a great month for equity markets. According to EquityClock.com, December has been the best performing month of the year for the S&P 500 Index during the past 63 years, both on a frequency and average return basis.
The benchmark has ended higher 76 per cent of the time, averaging a return per period of 1.7 per cent. December also has been the best performing month for the TSX Composite Index during the past 37 years. The Canadian benchmark gained in 86 per cent of the periods, returning an average of 2.2 per cent.
Two recurring events have a significant influence on equity markets during the period: Year-end transactions for tax purposes during the first two weeks in December and the Santa Claus rally in the last half of the month.
The S&P 500 Index has averaged a decline 60 per cent of the time over the past 20 years between December 5th and December 15th, the period attributed to tax-loss selling. Returns over this short-term negative period have averaged a loss of 0.91 per cent. The period that follows derives the majority of the strength realized in the last month of the year. Between December 15th and January 3rd, often referred to as the Santa Claus Rally period, the S&P 500 Index has gained 80 per cent of the time in the past 20 years, averaging a gain of 2.31 per cent.
The month of December frequently offers an opportunity for investors to switch from U.S. equities into Canadian equities. During the past 20 periods, the TSX Composite Index has outperformed the S&P 500 Index, on average, by 2.58 per cent from mid-December to the beginning of March. Seasonal strength in the materials sector and the end to the period of weakness for energy commodities fuels strength in the Canadian benchmark over its American counterpart during this period.
Preferred equity market investments for Canadian investors during the next three months are Exchange Traded Funds that track the S&P/TSX Composite Index or the S&P/TSX 60 Index. Actively traded choices include Horizons S&P/TSX 60 ETF (HXT), iShares S&P/TSX 60 Index Fund (XIU), and BMO S&P/TSX Capped Composite Index ETF (ZCN).
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Disclaimer: Comments, charts and opinions offered in this report by http://TimingTheMarket.ca and http://EquityClock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Investment Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Investment Management (Canada) Inc.
