'Strong markets finish strong': Why the stock market is poised to hit records in December, according to Fundstrat

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NYSE trader

  • With the S&P 500 up 12% year-to-date, history suggests that the stock market is poised to continue its historic rise in December, according to a Monday note from Fundstrat’s Tom Lee.
  • Since 1945, stocks were up 100% of the time in December when the S&P 500 was up 10% to 15% through the end of November, Lee observed.
  • “Strong markets finish strong,” Lee explained.
  • Visit the Business Insider homepage for more stories.

The US stock market is poised to hit new records in the month of December, according to Fundstrat’s Tom Lee.

In a note on Monday, Lee explained that “strong markets finish strong” based on a historical analysis of price action in the stock market.

Since 1945, the stock market traded higher 100% of the time in the month of December when the S&P 500 was up 10% to 15% year-to-date through November and when no bear market was underway, according to the note.

The S&P 500 was up 12% year-to-date as of Monday.

In this scenario, which the market is experiencing right now, the S&P 500 would on average return 3% in the month of December, Lee said. A 3% move higher from current levels would represent record highs for the stock market.

“Unless a bear market starts next month, December looks like it will be a very strong finish for 2020,” Lee said.

Read more: HSBC says buy these 31 global stocks that are exposed to the pandemic’s biggest disruptions to tech and set to become growth engines of the future

fundstrat chart.JPG

One more factor pointing to continued upside for stocks is a continued decline in the VIX index, which approached the critical 20 level in Monday trades.

A VIX under 20 would mark the first return to pre-pandemic levels in the fear-gauge volatility index.

“The benefit of a lower VIX is many funds VaR models (value at risk) would enable a higher level of leverage,” Lee explained.

A VIX below 20 is a strong risk-on signal that could lead to additional inflows into stocks from institutional investors, Lee said. 

A move below 20 in the VIX in December would further fuel the potential for a December rally, Lee concluded.

Read More: Buy these 10 stocks set to soar and smash Wall Street’s expectations in the recovery from COVID-19, RBC says

Bastion Balance Seoul, Korea.