By Callum Keown
The strong year-end rally in 2020 could have “bulls smiling” in 2021, if history is repeated, according to one strategist.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.10% and S&P 500 closed the year at new record highs after a bumper final two months of the year, before both indexes fell on the first trading day of the year.
LPL Financial chief market strategist Ryan Detrick said history shows that a strong November and December tend to lead to a strong year ahead.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.04% rose more than 14% in November and December, ending a tumultuous year at a new all-time high of 3,756.07 — gaining 16.3% in 2020. Detrick said a 10% or more gain in the final two months of the year has led to a higher S&P 500 the following year every single time since World War II. “In fact, January was also higher every single time as well, so maybe this strong rally is a clue for higher prices into .”
On the five previous occasions the index has climbed more than 10% in November and December — 1954, 1962, 1970, 1985 and 1998 — the S&P 500 has gained an average of more than 18% the following year. The index also climbed in all five Januarys, rising an average 3%.
The below chart shows what a year typical looks like after a 10% or more November/December rally. “Once again, strong returns are the playbook historically,” Detrick added.