What movements do we expect in the markets in December

Risk assets typically perform well in December, but the period after Christmas (late in the month) tends to be the strongest for stocks. This is particularly true in weaker years, when tax-loss harvesting typically occurs during the first 20 days of the month. However, this is not the case in 2024, as this year has been exceptional for stocks.

Since 1950, December has been the strongest month for the S&P 500, with an average increase of 1.2%, although this effect has diminished over the last 25 years.

Here are some seasonal trends to watch out for:

1. Gold
   This is one of the strongest seasonal trends across any market. Gold ended November near $2,650, marking its first negative month since June when the price dropped by one dollar. To find a significant drop before this month, you’d have to go back to September 2023. This has been an impressive performance for gold, and the trend remains bullish.
2. Weak Dollar
   December is the weakest month for the dollar in this century. The Dollar Index has fallen in six of the last seven years in December, with the only exception being a small decline in 2021. This is an impressive statistic, considering the bullish dollar market we’re currently in. The last drop in the dollar was a bit of a mystery, but part of the answer may lie in predicting repatriation flows toward the end of the year. Fundamentally, the focus will be on whether the Fed will cut rates on December 18.
3. Euro Strength
   This is not surprising given the weakness of the Dollar Index, but it’s worth noting, especially considering the current dislike for the euro. I understand the bearish stance on the euro, and a 50 basis-point rate cut in December would certainly give it more strength. However, the euro is unpopular, so there may be room for market relief. If this happens, any level close to 1.10 could become attractive for selling.
4. New Zealand Dollar
   The Reserve Bank of New Zealand recently made a less aggressive interest rate cut than expected, which could suggest a stronger economy ahead.
5. International Stocks
   While the S&P 500 tends to perform well in December, international stocks generally outperform. This is particularly a strong month for Chinese stocks, which have struggled to maintain their gains since late September. The Japanese Nikkei 225 also stands out for its performance.

Keep in mind that many of the seasonal trends in December (including stocks) typically reverse in January.