Here we go. December 1, 2020 is a Tuesday, so the markets already got started on this week yesterday. This December is packed with interesting scenarios, events, and reports for investors. Without further ado, let’s jump into the 7 most important things to look for from the December stock market.
Tesla Joins the S&P 500
Over a long enough period, the FOMO (Fear Of Missing Out) at the SP500 and the Dow Jones Industrial Average drives some interesting decisions. Some of them prove to be remarkably prescient, others embarrassingly reversed.
There is no denying that Tesla dominates news storylines in the automotive industry. Its market capitalization certainly qualifies for inclusion in the central S&P 500 index. On the other hand, Tesla stock is highly volatile, often tied to words its CEO blurts out on Twitter, or based on meeting tight-rope high production goals. More commonly missing those goals but getting credit for being kind of close.
Joining the S&P 500 will give Tesla stock a new stability that comes from being part of all those market index mutual funds and market index ETFs. At the same time, the company may inject a bit of volatility back into those indexes.
Tesla joins the S&P 500 on December 21. In one big add, rather than in tranches. The options expiration date in December is December 18. Craft your strategies accordingly.
Who Is Leaving the S&P 500?
The most important question the headlines are leaving out, is who is getting cut from the S&P 500 in order to add Tesla.
You can’t have an index of 500 stocks if you add one more without booting one stock from the index. Who is getting cut from the S&P 500?
Although they announced the addition of Tesla they have not announced who is getting kicked out. The S&P 500 index manager has said they will announce the company leaving the index on December 11. Look for that company to tank, especially if they are adding Tesla all at once, they might be cutting the loser all at once too.
Unlike Tesla’s addition on December 21, the announcement of the company leaving the index comes on December 11, which is before options expiration.
Got a hunch, or better yet, a well reasoned and researched list of potential companies getting the axe? Grab that leverage, get those cheap, in the money options, and hold on for your speculative ride. Or, the smarter move might be making a volatility play for the biggest contenders. After all, the company leaving will be plunging down, while the potentials who didn’t get the axe can expect a rally of relief.
Is Zelle safe? Find out here.
Dow at 30,000?
The Dow raced ahead, gaining 11.8% in November. The Dow opened at 29,797.50 on December 1st, well within striking distance of 30,000.
While no one is really out there promoting Dow 30K as a significant emotional milestone for investors, the big numbers always draw a bit of fanfare from the financial press.
Will they, or won’t they?
The stock market is pricing in almost a sure thing that at least one of the three Covid vaccines will get the approval it needs, and that the coronavirus pandemic may finally be put to rest behind us.
One question on everyone’s mind is if the President can keep his politics off of a vaccine long enough to avoid tainting the desire for widespread adoption needed for a vaccine to make a difference. Even the most optimistic projections assume a slower-than-most-would like rollout, even with quick approval.
If something goes wrong here, expect fireworks in the markets.
Everyone, and I mean EVERYONE, with the economic qualifications to be taken seriously is saying that the US economy is in desperate need of financial stimulus. Unfortunately, for the people and the economy of the United States, leaders in Washington care a lot more about Rs beatings Ds, and vice versa, than they care about doing what is right for the country.
The only way a stimulus is getting done is if the outrage of the citizenry points its fury toward Washington. Unfortunately, a lot of the citizenry have become RvD zealots as well meaning that the necessary furor is unlikely to generate any sort of stimulus for December.
That leaves December stimulus up to a Federal Reserve that is increasingly running out of the “good weapons” and is left to less effective and well received strategies.
More Mixed Economic Data
November brought a slew of mixed economic data. Look for more of the same in December. Seasonal hiring is likely to be weaker than in previous years. Seasonal shopping may not be enough for some retailers.
Durable goods orders were down, but housing was up. Will that hold in December as well?
Don’t forget about mutual fund managers scrambling for window dressing on their funds so they can show big stakes in the markets bit winners for the years, and cut stakes in those that were losers. Volatility is the key. Winning investments might come from calling the right ones in the short-term, but mean bad news for fund returns in the longer term.
Is is worth buying Amazon here to make it look like you knew Amazon would dominate a Covid shopping year?
Covid Winners Becoming Post-Covid Losers?
Are Covid developments going to play a big role in the December stock market?
If you’re really ready to gird your loins for some very speculative, but potential very profitable short-term (a few months) trades, will the companies that were the big winners during the Covid pandemic become the big losers next year when the vaccine arrives?
Amazon isn’t going anywhere, and betting against the giant can’t be considered a slam dunk. Same with the Walmarts, and Targets out there.
But, what about the Zooms, the companies whose vaccine doesn’t become “the big one”, and the home exercise equipment companies? As Americans return to their offices (maybe in smaller numbers), and the also-ran vaccine makers become clear, and Americans head back to their old gyms, will these companies tumble? If so, when?
And, what about the big losers from Covid? Travel related companies, Disney (both the movies it couldn’t release for billion dollar box offices, and its theme parks), and movie theatres? Not to mention office share companies, and maybe even REITs? Will those recover hot, and if so when?
December Stock Market Investments
There are a lot of ways to take your short-term investing in December and setting up for the months to follow. Being right could mean huge returns. Being wrong could mean big losses.
Sticking with companies that can weather the storm, even if they take a short-term whack, is the probably the best way to minimize risk. Or, tighten up those stops and see where you can hedge.
As always, for long-term investors the smart play is a well-diversified portfolio tailored to your time frame and risk tolerance. Don’t go messing with it to make guesses for the December stock market. That’s for your trading money, not your long game investing money.
If you don’t have trading money, then sit this one out. If it will make you feel better make some predictions on Facebook or Twitter and then bring out the, “I told you so”s in January, if you must play.
December News and Disclaimer
As always, this article, and all articles on Finance Gourmet are for informational purposes only. They are not to be used as investment advice, nor as an offer to buy or sell securities. For individual investment advice consult your financial advisor and tax advisors.
The author of this article does not hold himself out to be a financial advisor.
At the time of publication, the author owned shares in Amazon, Target, Pfizer, and Disney, although that may change at any time without notice.