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December Through January Seasonality

With a weak start to the month, many investors are wondering where the seasonal strength that we typically see in December is.  Is it time to hit the panic button?  Maybe not yet.  Following up from a Wall Street Journal story that highlighted some of our seasonality analysis, the chart below shows a composite graph of the performance of the DJIA from December through January over the last 20, 50, and 100 years.  As shown in the chart, December strength is typically back end loaded.  In fact, over the last 100 years, the DJIA has typically been down for the month as late as December 21st, but it has still managed to finish the month with an average gain of 1.24%.

Over the last 20 and 50 years, December has fared a little better.  Even over these time frames, though, the index has only been marginally higher two weeks into the month, before rallying to finish off the month strong.  Over the last 50 years, the DJIA has averaged a gain of 1.53% by the end of December.  More recently, over the last 20 years, the DJIA's average monthly increase has been 1.44%.  One thing to note in the chart below is that the start of the typical 'Santa Claus' rally that comes in December has moved up over time as traders have tried to anticipate it.  Looking at the last 100 years, the Santa Claus rally began around the 21st of the month.  In the last 50 and 20 years, the rally has kicked off a week earlier beginning on the 14th.

Looking ahead to January, over the long-term (50 and 100 years) it has been a positive month for the DJIA.  More recently, though, January has been a tough month for equities as the DJIA has averaged a gain of just 0.03%.

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