Market Overview

Should Investors Expect A Tax-Driven Stock Market Sell-Off In The Next 2 Weeks?

Share:
Should Investors Expect A Tax-Driven Stock Market Sell-Off In The Next 2 Weeks?

Investors enjoyed huge returns in the month of November. But after a solid start to December and a historic run off the March lows, some traders are getting concerned about year-end profit-taking heading into the 2020 home stretch.

So far, the SPDR S&P 500 ETF Trust (NYSE: SPY) has rallied another 2.2% in December and the SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) is up 1.8% month-to-date. November’s 10.8% gain was the best month of November for the S&P 500 since 1928.

While it may seem appropriate to be on the lookout for a correction following such a strong month, history suggests otherwise. Since 1974, the S&P 500 has gained at least 10% in a single month 12 times. Of those 12 instances, the average return during the following month was positive 0.6%, according to LPL Financial.

Related Link: What Traders Need To Know About The Historic S&P 500, Nasdaq 100 Rebalancing

Santa Claus Rally Coming? The month of December has been a historically strong month regardless of what occurs in November.

Since 1950, December has been the second-best month of the year for the S&P 500, trailing only November.

More recently, that trend hasn’t held up as well, with the overall December returns weighed down by a 9.2% drop in 1998.

In a typical year, the S&P 500 returns an average of 1.5% for investors. Investors looking for December profit-taking may see the exact opposite. When the S&P 500 is up at least 10% year-to-date, that average December gain increases to 2%.

Stocks have also historically performed well during the last five trading days of a year through the first two trading days of the New Year.

This seasonal outperformance is known as the “Santa Claus Rally.” Since 1950, the S&P 500 has generated a positive return during the Santa Claus Rally period exactly 79% of the time.

Benzinga’s Take: The one place investors may see weakness in the last two weeks of the year is in some of the worst-performing stocks of 2020.

By dumping these stocks before the end of the year, investors can offset some of the capital gains they have logged in the 2020 tax year, a practice known as tax loss selling.

 

Related Articles (SPY)

View Comments and Join the Discussion!

Posted-In: Broad U.S. Equity ETFs Education Futures Top Stories Markets Trading Ideas ETFs General Best of Benzinga

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com