MILLBURN, N.J. ( Stockpickr) -- After a horrible September, the markets delivered a glorious October, only to have the goblins ruin November, which turned out to be a big turkey.
So will we see a Santa Claus Rally at the end of the year? And if so, what stocks should we be buying here?
First, let's look at some of the pertinent statistics that may help answer our questions. (I use my own proprietary statistics that quantify and analyze the
from 1950 through 2010.)
Historically, December is the best month for the S&P 500, with an average gain of 1.65%. The second best-performing month, on average, is November.
December is also the least historically volatile month, with a standard deviation of returns of 3.17%. The next least-volatile month is March.
Since 1950 (61 years), the S&P 500 has declined on 21 occasions, not including this year, in November. In only three of those years did a down December follow a down November: in 1969, when the S&P 500 declined by 1.87%; in 1974, down 2.02%; and in 2007 , down 0.86%.
The average return in December following a down November is 2.61%. Excluding those three down Decembers, the average gain is 2.8%.
In years before a presidential election, such as 2011, December has gained on average 3.34%, more than double its usual annual return. Only 2007 was a down year for November and December in the year before the presidential election.
>>4 Beaten-Down Stocks Poised for Rebounds
Have there been other years in which September was down, October was up and November was down for the S&P 500? Certainly. That occurred seven times, followed by both up and down Decembers: in 1956, when the S&P 500 rose 3.52% in December; in 1963, up 2.44% in December; in 1969, down 1.87% in December; in 1974, down -2.02%; in 1991, up 11.16%; in 1993, up 1.01%; and in 1994 up 1.23% in December. That average December return was a 1.78% gain.
So yes, there is most definitely some statistical evidence that a rally could occur this December. With that in mind, here are several
stocks and strategies for a 2011 Santa Claus Rally