The market could be on the verge of a year-end rally.
According to Bespoke Investment Group’s Paul Hickey, stocks generally stage their final push for the year in mid-December — even when the month starts off weak, as this one did.
“You would think you’d see strong performance throughout the month,” the firm’s co-founder told CNBC’s “Trading Nation” on Wednesday. “What we found is almost more so than any other month, December is a very back-end-loaded month, meaning the returns usually come towards the back half of the month.”
Hickey builds his bullish case in a chart that shows the intramonth performance of the S&P 500. He compares the current bull market to the overall trend between 1983 to 2018.
Since 1983, his chart shows December’s first two weeks often see muted returns. Stocks typically don’t break out into a sustainable year-end rally until around Dec. 14, according to Hickey’s data. That’s around the end of next week.
Even with last December’s plunge skewing the data, Hickey notes the historical trend is intact. So he’s confident the odds are in favor of a positive December despite the month’s choppy start.
“The market was extremely overbought heading into the month,” he said. “It was a healthy pullback. We didn’t see any major technical damage in the charts.”
The major indexes gained more than a half percent Wednesday and were pointing to higher opens on Thursday. But the S&P 500 is still down 1 percent, and the Dow is off almost 1.5%.
Hickey is confident stocks will rediscover upward momentum that will last into 2020.
He isn’t concerned climbing geopolitical risks, including the looming U.S. tariffs against China scheduled for Dec. 15, will disrupt the seasonal trend. Hickey points out the S&P 500 has already soared almost 25% this year surrounded by trade jitters.
Hickey cites a growing U.S. economy and a Federal Reserve keeping interest rates steady for his bullish outlook.
“These two positive things should set the stage for the market having a decent return,” Hickey said.
Bespoke Investment Group’s Paul Hickey finds weak market starts to December are generally not an ominous signal.