by Gary Alexander
December 1, 2020
Here in Western Washington, winter comes early. In the Eastern half of the nation, the coldest month is January and the coldest streak in the northern tier is January 16-25 – right around Inauguration Day – but due to some strange scientific voodoo, December is the coldest and windiest month up here. What’s more, our sunsets start getting later December 11, not the 21st. Our winters are almost over by Groundhog Day.
Let me break some other weather myths: Seattle’s rainfall is about average for the nation, and we only get half Seattle’s rain in the islands up north. Here’s another myth: “It’s darkest right before dawn.” Nope, I get up well before dawn and I see gray threads of light long before dawn, vs. the inky black of midnight.
This is a long way of telling you that the stock market has all but shouted that the nightmare of 2020 is almost over. The major forward-looking indexes delivered all-time highs the morning after Turkey Day.
Through Friday, November’s gains are the best November in the Dow since 1928 and the best of any month since January 1987 – and that’s in a year of a crippling pandemic – so the market is clearly not mired in warnings of a Dark Winter ahead. Nevertheless, most of the nation seems depressed and bracing for some “third wave” of COVID-19 hospitalizations before the vaccines begin to circulate in mid-2021.
We can’t promise that December will replicate November’s Alpine ascent, but December has been one of the best months in stock market history. According to Bespoke Investment Group (chart, lower right), December is the #2 best month of the last 50 and 100 years, using the Dow industrials. December also rounds out the stellar fourth-quarter returns, which have surpassed the other three quarters– combined – over the last 20 years, including the terrible fourth quarters of 2008 and 2018. However, December is decidedly a tale of two halves – a fairly flat first half, followed by a Holly Jolly Christmas rally.
This first chart is somewhat dated (1950 to 2015), but it gives you a good idea of December’s two faces:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Some Dark Days in Early December in American History
The market foresees a better future. It always seems darkest before hope breaks through. It’s always instructive to look back to similar eras, when times looked darkest, and then see what happened next.
With the limited time and space available, I’ll take just four examples from this week in history, about a generation apart, in times which seemed dark – even darker than now – and then see what happened next.
On December 1, 1914, the San Francisco Stock & Bond Exchange became the first U.S. exchange to re-open its doors after the outbreak of World War I. Stock markets in Europe shut their doors in late July for most of the war’s duration, while U.S. markets shut down four months, with most U.S. markets limited in trading until the spring of 1915, but when markets opened, the Dow more than doubled, from its closing of 52.32 on July 30, 2014 to 110.15 on November 11, 2016, shortly after Woodrow Wilson’s re-election.
On December 2, 1940, a seat on the New York Stock Exchange changed hands for just $33,000, the lowest price for a seat in the Twentieth Century, and the lowest price since 1899, when a seat sold for $29,500. The world seemed darker in 1940 than any time since “the lamps went out in Europe” in 1914. Most of Europe had fallen to Hitler’s Blitzkrieg, while Japan had subdued most of East Asia. Britain was barely holding on, and America was reduced to a nervously neutral armament provider for Great Britain.
A year later, after Pearl Harbor on December 7, 1941, America entered the fray and helped defeat both Axis powers within 44 months, with the Dow doubling and an era of postwar prosperity on the horizon.
On Monday evening, December 2, 1974, President Ford addressed the nation in a televised speech, which sounded the alarm for three major economic crises at once – inflation, recession, and the oil shortage (aka “the energy crisis”). Investors were not impressed with his talk. The week of December 2-6, 1974 brought the market’s absolute low of the last 58 years, reaching Dow 577.60 on Friday, December 6, a 6.64% drop in one week, but in the next 25 years, the Dow gained 20-fold, to 11,500 in December of 1999.
During the phenomenal bull market surge of 1994-99, when the Dow tripled, I have my choice of crises in nearly every year. There was a market scare in the late months each year. On December 6, 1994, Orange County (California) declared Chapter 9 bankruptcy, the biggest bankruptcy filing by a municipality. That came on top of a Mexican peso crisis. December 5, 1996 was the date of Fed Chairman Alan Greenspan’s notorious “irrational exuberance” speech. Late 1997 was the Asian currency crisis. Late 1998 was the Russian ruble and hedge fund crisis, followed by the Y2K scare in late 1999, and the list goes on.
To keep with this date in history, on Monday, December 1, 1997, we began to emerge from the scary Asian currency crisis as the Dow gained 190 points (+2.4%), from 7823 to 8013. The next day, Tuesday, December 2, Fed Chair Alan Greenspan reversed the tone of his previous year’s “irrational exuberance” speech and issued an upbeat report on the Asian financial crisis, in which he said the “Asian flu” would gradually abate and the Asian economies would be stronger for their suffering. And they were. The Dow gained 326 points in the week of December 1-5. For the week, the Dow gained 326 (+4.17%) to 8149.
These dark days will recover too, as sure as the days will grow longer. The stock market has predicted it.