November Could Spawn Monster December

With the stock market delivering so much in November, many are wondering whether the gift-giving party will run dry in December.

Despite more weakness Wednesday, both the S&P 500 and the Dow Jones Industrial Average rose 3.5% in November while the Nasdaq Composite gained 5.2%.

Almost everyone on Wall Street agrees that the sharp rebound from the October lows has taken the major indices to overextended territory, and that some consolidation of these gains is in order. But the extent of this past month's gains alone does not warrant a decline in December. In fact, whenever the S&P advanced in November, it rose in December as well 78% of the time over the past 42 years, according to TradingMarkets.com.

Last year, the postelection rally was fairly evenly distributed between November and December. The S&P gained 3.7% in November 2004 and rallied another 3.7% in December. Similarly, the Dow gained 3.9% in November 2004 and another 3.8% in December. The Nasdaq rallied 6.2% in November 2004 and another 4.1% in December.

In 2003, most of the year-end gains were actually made in December. The S&P rose only 0.8% in November 2003 before rallying 4.8% the following month. The Dow dropped 0.2% in November 2003 but roared back 6.6% in December. The Nasdaq gained 1.4% in November 2003 and added 2.5% in December.

Still, the past three sessions have prompted some to fret about the momentum of the current rally. On Wednesday, the Dow fell 82.29 points, or 0.76%, to 10,805.87 and the S&P fell 8 points, or 0.64%, to 1249.48. As in previous sessions, fresh evidence of strong economic growth in the third-quarter GDP made investors fret that inflationary pressures may push the Federal Reserve toward more rate hikes than currently expected. The benchmark 10-year bond fell 5/32, while its yield, which moves inversely, rose to 4.5%.