Why Today's Sell-off Doesn't Spell Doom for 2021

Historically, big gains in November and December signal a good year ahead for stocks.
Jennifer ChanJan 04,2021,19:23

End-of-the-year optimism met beginning-of-the-year realism as investors sold off big today, with tech giants like Apple (Nasdaq: APPL) and Amazon (Nasdaq: AMZN) weighing on indexes as rising coronavirus cases weighed on investor sentiment.

The reality of the difficulty of distributing the shots seemed to quell previous investor excitement which picked up pace in October on historic vaccine developments. Uncertainty over the pandemic as well as tomorrow's Senate runoff race (which will determine party control of government) pushed the VIX up nearly 20% as of midday trading, reversing the monthslong trend downwards. The S&P was down over 1.5% as of midday. Will today, the first trading day of 2021, serve as a barometer for the market this year?

History says "no."

LPL Financial chief market strategist Ryan Detrick said the strong year-end rally in 2020 could have “bulls smiling” in 2021, reported MarketWatch today. The rationale behind Detrick's optimism is predicated on history, specifically the years 1954, 1962, 1970, 1985, and 1998 — which represent the last five times when the S&P 500 has jumped more than 10% in the last two months of the year. What followed was a year of significant gains.

In the last two months, the S&P rose more than 14% in November and December. According to Detrick, a 10%-plus gain in the final two months of the year has led to a higher S&P 500 the following year every single time since the Second World War.

“In fact, January was also higher every single time as well, so maybe this strong rally is a clue for higher prices into [2021]," he told Marketwatch.

The last five times the index has jumped more than 10% in November and December, the S&P 500 has gained more than 18% on average the following year.

Will history repeat itself? When it comes to stock market performance this year, let's hope that old adage is spot on.

Topics:S&P, Stocks