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