Stocks' November rally bodes well for the market in December and next year

Stocks are poised to finish November sharply higher, and the momentum is likely to continue through December and into next year, based on historical data.

The Dow Jones Industrial Average DJIA is up 8% so far in November, putting it on pace for its largest monthly percentage gain since October 2022, when it rose about 14%, according to Dow Jones market data. The S&rose 8.3% month-to-date, on pace for its largest monthly gain since July 2022, when it increased 9.1%. The Nasdaq Composite COMP gained 10% so far this month, on pace for its best month since July 2022, when it was up 12.4%.

All three indexes are on pace for their best November since 2020.

Read: Stock market barrels into year-end with momentum. What that means for December and beyond.

Looking at trends that date back to 1950, the S&P 500 has generally seen strong returns following a monthly gain of 8% or more, increasing another 1.8%, on average, in the following month, according to Ryan Detrick, chief market strategist at the Carson Group. The winning streak for the large-cap U.S. equity gauge has kept up for a year 90% of the time, recording a 15.8% gain on average, Detrick said.

Ryan Detrick, the Carson Group

Meanwhile, stocks have historically seen a December rally following a strong performance year-to-date.

The Nasdaq Composite is up 35% year-to-date, according to FactSet data. Based on historical data, when the tech-heavy index was up more than 20% through the end of November, it finished December higher 67% of the time, and has seen a 3.7% gain for the month on average, according to Dow Jones market data.

The S&P 500 has gained 18.2% so far this year. The index has historically finished December higher 75% of the time, and averaged a gain of 1.9% in December.

Mike DeStefano, Dow Jones market data.

To be sure, the stock market’s past performance does not always predict future results.

The recent rally for stocks comes as investors expect the Federal Reserve to start cutting its key interest rate as early as March next year, while the U.S. economy remains resilient. Traders are pricing in a 42.7% likelihood that the central bank will lower its interest rate by 25 basis points in its March meeting, according to the CME FedWatch tool.

“The soft landing outlook is the consensus and geopolitical issues seem to have moved to the backburner,” Louis Navellier, chairman and founder of Navellier & Associates wrote in a recent note.

“Investors are likely to lean in during December trying to catch up with such strong performance. Without an external shock, the trend should continue to the upside into year-end,” Navellier said.