Market Perspectives for December

Wall Street is optimistic that December will maintain its reputation as one of the more robust months for the stock market, possibly setting the stage for a year-end rebound. Stocks seem set to wrap up a month that has had its ups and downs. While November generally showed strong performance, this time a dip in major tech stocks was felt across the board. By Friday, the Dow Jones Industrial Average and S&P 500 finished the month slightly up, but the technology-heavy Nasdaq Composite Index saw a drop of nearly 2%. Despite a sharp decline earlier in the month, there are hopes that December will bring back a favorable market atmosphere, potentially lifting stocks back to record highs.

Historically, December ranks as the third best month of the year for both the Dow and S&P 500, particularly since 1950. For the Nasdaq, it has been similarly strong since 1971, according to the Stock Traders Almanac. Ken Mahoney, CEO of Mahoney Asset Management, remarked, “We think we’re moving out of a perfect storm into something better, maybe not perfect.” He believes the recent downturn could actually strengthen the year-end rally.

Some analysts point to encouraging signs in the market. There’s anticipation of solid third-quarter earnings, with the S&P 500 predicted to see a 13% growth, as companies have managed to overcome rising costs and trade issues to exceed estimates. The Federal Reserve is also expected to cut interest rates in December, which could benefit businesses sensitive to interest rate changes. Additionally, typical end-of-year earnings jitters could push stock prices higher.

Asset managers who have been lagging are now returning to the market, deploying capital to improve their portfolios as the year concludes. The recent underperformance could set the stage for a rebound, especially since several high-growth tech companies have taken a hit. For instance, Nvidia dropped 13% in November, with Super Micro Computers suffering a 35% decline. Coinbase also fell by 21%. Mahoney believes upcoming trends will favor stock pickers who can identify which companies will excel in the AI sector. After saving cash over the past few months, he has returned to investing in stocks he finds promising, like Microsoft and AMD, stating, “We’re still picking companies that we believe are leaders.”

However, some investors are cautious about the potential for continued declines. There are worries that the current market for high-flying artificial intelligence stocks is unsustainable, possibly creating a future valuation dilemma. Javed Mirza from Raymond James noted that some recent signals suggest we may be entering a “correction phase,” which could lead to the S&P 500 dropping by as much as 10% in the next three months.

Upcoming Schedule

• Monday, December 1st
• Tuesday, December 2nd: Earnings from CrowdStrike Holdings
• Wednesday, December 3rd:
  • 8:30 a.m. – Import Prices (September)
  • Earnings from Salesforce, Dollar Tree
• Thursday, December 4th: Earnings from The Cooper Company, Ulta Beauty, Hewlett-Packard Enterprises, Kroger, Brown-Forman, Fastenal, Hormel Foods, Dollar General
• Friday, December 5th