November and December are hands down the two best months to buy stocks
The last six months haven’t exactly been the best time to invest. History says that’s about to change.
November and December are typically the two best months to buy stocks. In the last five years, the S&P 500 has posted an average gain of 2.2% in November and December, better than any other two-month stretch. In fact, stocks have not been down in November and December since 2008.
The November and December trend goes back much further than that: since 1950, December has been the best time to invest in the S&P 500, with an average gain of 1.7% in the year’s final month. November isn’t much worse at 1.5%, the third-best month on average since 1950.
First, let me start with the standard disclaimer (all together now): Past performance is not indicative of future results. But trends are telling, and 65 years of strong performance is a pretty good trend.
The main reason why November and December is the best time to invest is fairly obvious: the holiday shopping season provides an annual jolt for the U.S. economy, and that consumer confidence translates into bullish sentiment on Wall Street. This year, there’s a little extra reason to be bullish.
For one, investors love to buy stocks at a discount, and the big market collapse from July through September gave value investors a much better entry point. Sure enough, stocks started their rally early this year; the S&P is up 11.7% since bottoming at 1,881 on September 28, recovering nearly all of its late-summer losses.
That rally should have enough legs to get through November and December, not only because of the history, but because stocks are still only up 2.2% year-to-date and 3.6% over the last 12 months. Though valuations remain roughly in line with where they were heading into last November (the S&P currently trades at 26.6 times earnings, the same as a year ago), investors are itching to buy at this time of year, and the recent downturn is all the rationalization they need to do so.
Here at Cabot Investing Advice, all of our advisories are now bullish. Mike Cintolo, our resident growth expert and chief analyst of our Cabot Growth Investor and Cabot Top Ten Trader advisories, says the intermediate- and long-term trends “are now pointed up.” A month ago, he advised keeping 60% of your portfolio in cash. Now he’s buying again, and his cash position is less than 40%.
And it’s not just large caps that have turned positive. After weeks of lagging well behind the big boys, small caps are finally making a move—the Russell 2000 is up 1.5% in the last week, with biotechs and utilities leading the way. Unlike many large caps, which on average make 40% of their money overseas and are thus being hurt by the strong dollar, small-cap stocks do most of their business in the U.S. Thus, small caps are faring better than large caps this earnings season, something that could give them an extra jolt in the coming weeks.
And again, it never hurts to use history as your guide: Since 1979, the Russell 2000 actually outpaced the S&P in November and December, with average gains of 1.8% and 2.8%, respectively.
Any way you slice it, these next two months are the best time to invest in stocks. January could bring more volatility and uncertainty, but November and December is party time on Wall Street. So if you’re looking to make a quick buck to help pay for all that Christmas or Hanukkah shopping, it might not be a bad idea to buy a few growth stocks now and see where they are by the time the ball drops in Times Square.
And if you want some advice on what growth stocks to buy, take out a subscription to Cabot Growth Investor, where Mike Cintolo gives you 10 weekly stock picks poised for big short-term gains. The service comes with a 60-day risk-free trial.