December is historically one of the best months of the year for stocks.
The last month of the year is the second month in the best six-month cycle for stocks and as an added bonus, an favorable seasonal factors kick in for several sectors, particularly on the cyclical side of the ledger. As was highlighted earlier this week, the Materials Select Sector SPDR (NYSEArca: XLB) and the Energy Select Sector SDPR (NYSEArca: XLE) are usually the best of the nine SPDR ETFs this month. [Two Cyclical ETFs for December]
Although just four trading days have passed this month, it is accurate to say December is not living up to its reputation as a good month for the bulls. The S&P 500 has closed lower in three of December’s four trading sessions. The damage has not been confined to U.S. large-caps, either.
“International markets have gotten hit especially hard, including Brazil (-5.2%), Italy (-3.4%) and France (-3%). In the US, smallcaps are down the most, while Industrials, Health Care and Consumer Discretionary are the sectors that have underperformed,” according to Bespoke Investment Group.
Laggard performances to start December by industrial and discretionary names along with small-caps, assuming the trend lasts, would be cause for concern. Discretionary and industrial ETFs typically perform well at this time of year and industrial funds are coming off what is usually a good month in November. As for small-caps, a disappointing performance this month could disrupt the potential for the January Effect. [Prep for the January Effect With ETFs]