S&P 500 #ChartStorm - 29 Nov 2020

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I'll pick a couple of themes to explore with the charts, but sometimes it's just a selection of charts that will add to your perspective and help inform your own view - whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context and color. It's worth noting that the aim of the #ChartStorm isn't necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to. But inevitably if you keep an eye on the charts they tend to help tell the story, as you will see below.

So here's another S&P 500 #ChartStorm write-up!!

1. As we head into December here's a snapshot of 2020 YTD... fairly decent numbers. If you went to sleep Dec 2019 and woke up now you'd be like: that was a decent year

It’s been a wild ride in 2020. From the steady crawl higher to start the year, to the 34% COVID crash from February 19 through March 23, through the massive move off the low. The latest feature is a sharp rotation into beleaguered areas of the stock market as the high-flying mega tech growth names have taken a relative breather.

Putting it all together, the S&P 500 is up 12.6% on a price return basis and has returned nearly 15% when including dividends. Wouldn’t be ironic if it settled at an ‘average’ return for the year? December tends to feature decent returns, but we’ll get into that shortly. Sentiment is running hot right now, but so too is global breadth, so which will yield? We’ll hope to address some of these current market features today.

Bottom line: Ho-hum.. a 13% advance for the S&P 500 this year. Just ignore that 34% crater during Q1. The rally off the low was remarkable. Never in the last 40 years has the S&P 500 fell 20% or more intra-year to then post an annual double-digit percentage climb.

2. Seasonality snapshot: historically 70% of Decembers were positive [but note with benefit the worst drawdown column and the standard deviation around the average return] We’ve all heard the refrain that November through April is a friendly time for the bulls. December is among the best months of the year considering how low volatility tends to be. Returns during the month can be a little shaky at the onset, but then a mini-melt up sometimes occurs in the final two weeks. Check out our LinkedIn post regarding a rather cheery seasonal outlook (we turn a little Scroogy at the end!).

The final month of the year often sees rising stock prices and declining volatility. Since 1964, 70% of all Decembers have had a positive return. Within the market, momentum stocks tend to do even better than the S&P 500. We talked about how momentum sees a rebound in the final month of the year on last week’s ChartStorm. But hold your reindeer.. seasonality is simply a statistical description of the past. It’s a secondary indicator at best. A portfolio manager is better suited to arrive at a core thesis first and then dig into seasonal trends.

Bottom line: Don’t turn your back on December. Drawdowns can still happen – we don’t have to recall back far. 2018 featured a massive decline before a rally in the final week of the year. Nevertheless, the historical tendency is for December to provide strong risk-adjusted returns … on average …

3. Seasonality: monthly avg. returns for Value vs Growth December is usually decent for value vs growth... Value has beaten growth by more than 4% so far in November. SPYV is +13.9% while SPYG is +9.8%. It’s hard to complain either way if you are a value or growth-oriented investor (take a step back to YTD.. SPYV is -1% vs. SPYG +28%). November has historically been a better month for growth, but of course, any one year can do its own thing. What does the future hold? December has a bias toward value with the factor returning about a quarter of a percent.

Nothing to write home about. January sees a little better gains. Many pundits’ eyes will be on value stocks to see if the group can buttress a winning November with another month of outperformance. Energy stocks and financials have done exceptionally well over the last several weeks. Small caps have also beaten large caps as the latter has become dominated by growth names. The large cap index will soon welcome a new growth member.. Tesla.