Despite stumbling out of the gates, U.S. markets and stock ETFs could still pick up steam in the seasonally strong December month.
Over the past month, the Invesco QQQ Trust (NASDAQ: QQQ) decreased 8.1%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell 6.5% and SPDR S&P 500 ETF (NYSEArca: SPY) dropped 6.2%.
The renewed U.S.-China trade tensions, signs of a slowing global economy and tightening central bank monetary policies have tripped markets. Meanwhile, with later-dated bond yields slipping and short-term yields rising, some are concerned that a potential yield-curve inversion could presage an economic recession.
Nevertheless, the December month has traditionally been a seasonally strong period for stock investors. Since 1950, the S&P 500 has strengthened three-fourths of the time in December, or more than any other month on record, the Wall Street Journal reports.
The S&P 500, though, has stumbled coming into December this year, falling 4.6% for the first week this month, its worth performance since March.
“It is a cadre of challenges simultaneously present today which explains why the stock market has been so frustrating,” Jim Paulsen, chief investment strategist at The Leuthold Group, told the WSJ. “At this point, whether you expect a deeper correction or an imminent bear market, the appropriate investment posture is similar—defensive.”
The December seasonal strength has not been fully understood, but some observers argued that companies are averse to releasing bad news during the festive season, which helps Americans maintain their positive mentality. Others believe that ear-end portfolio reshuffling helps fuel a rally as investors adjust their allocations to different markets or take advantage of tax-loss harvesting.
U.S. equities could also pick up if the Federal Reserve decides to take a more wait and see approach later this month, which could slow the pace of interest rate hikes next year.
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