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'December's return may be sub-par': A Wall Street chief strategist warns that stocks could limp into year-end after an explosive November

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  • History shows that December's returns may be sub-par following an explosive November for stocks, according to CFRA's Sam Stovall.
  • The chief investment strategist highlighted several historical data points that indicate weak gains are ahead.
  • For example, in every November since WWII, whenever the S&P 500 gained 5% or more, December's rise was below average, Stovall said. The S&P 500 is on track to record over a 10% gain in November.
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Stocks may use December to catch their breath after a post-election sprint, according to CFRA's Sam Stovall.

The chief investment strategist highlighted in a note on Monday that December's returns may be subpar given how well major indexes have performed in November. On November 24, the stock market hit a "three-way all time high" with the Dow, S&P 500, and Russell 2000 all hitting new records. Stovall said that this three-way high has only occurred 200 times since the Russell 2000's inception in 1979, and each time following the event, stock market gains have remained flat.

In the 22 days following the three-way high, the S&P 500 has recorded a flat price change, compared to the average gain of 0.71%, said Stovall. The benchmark index rose in price only half of the time following this market event, versus the typical 63% frequency of advance, he added.

Read more:Buy these 10 stocks set to soar and smash Wall Street's expectations in the recovery from COVID-19, RBC says

Stovall also said that the outsized gain for the S&P 500 during the month of November may lead to a sub-par December if November's S&P 500 price rise remains above 10%. As of intraday trading on November 30, the S&P 500 has gained roughly 10.5% this month.

Stovall said there have only been 11 times since World War II that the stock market in any month of the year rose by 10% or more, and that the following month saw an increase just 45% of the time. Also, in every November since World War II, whenever the S&P 500 gained 5% or more, December's price rise was below average, he said. 

"So while the equity market may continue on its course of confidence that a soon-to-be-released Covid-19 vaccine will allow global economies to reopen in earnest in 2021, history hints that December's return may be sub-par as stocks catch their breath from their recent post-election sprint," Stovall said. 

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