December Delight!

December is near. For many of us the best month of the year. And that’s not just because of all the festivities. December brings happiness to investors as well. Below are five charts to show December’s delight!

  1. The best

To cut to the chase, December, as perhaps known to many investors, is historically the best month for US equities. The graph below shows that, since 1946, the S&P 500 index yielded an average return of 1.7% during December. With that average it comfortably tops the list of best performing calendar months. The difference with the runners-up, April, October and March, may look small, but compounded over a 70-year period this adds up roughly 30% of additional return. September is the worst month with an average loss of 0.5%. In case you were wondering, December tops the list for shorter historical periods as well. Starting in 1970, 1991 or 2002, December brought the most joy for US equity investors.

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  1. Risk

This is where most analyses on December returns end. But there’s more. Risk for one. The graph below reveals December is also the least risky month. Volatility, measured on an annualized basis, averaged a little above 10%. That’s 40% less risky than the average over all calendar months, and a striking 80% less than October. Not only generates December the best return on equities, it comes with the lowest risk as well. From a Sharpe angle that’s pretty awesome.

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  1. Less negativity

Low (average) risk doesn’t always prevent you from harm. Therefore, I also looked at how often December realized a negative return. Again December comes out on top. Only in 23% of the time equities are heading south during December. In almost four out of five occasions you win! By the way, this was not the case last year when equities fell marginally in December.

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  1. Least pain

In addition to the graph above, suppose that December does yield a negative return, just how bad do things get? The graph below shows that the average negative return for December equaled 2.1%. Indeed, that is the ‘best’ negative.

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  1. Risk averse

Are you really risk averse? In that case the last chart should suit you particularly well. Even with the lowest probability of a negative return AND the lowest average loss if that would happen, a traumatizing month could still slip through. Think of October 1987 (-22%), or October 2008 (-17%). Fortunately, December does not take any part in this. The graph below reveals that December is not present in the list of the 50 worst calendar month returns since 1946. The worst December month can be found at rank 52 with a loss of 6%. That’s not good, but also not the end of the world. Hence, these five graphs underpin that December is the best month for investors. But hey, it’s the exception that confirms the rule, right? Anyway, enjoy your December.

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One response to “December Delight!

  1. Pingback: Week End Blog – Draghi Delusion | Jeroen Blokland Financial Markets Blog·

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