Long-term statistical analysis of stock market performance in December tends to be positive. With holiday shopping in full swing, many stocks tend to perform well.
What Trends Are Evident in Stock Markets in December?
Source: StockCharts NASDAQ Composite Index
Stock markets are unpredictable at the best times. 2020 has upended convention, defied statistical trends, and presented traders and investors with a slew of options they never knew existed. Volatility has been a mainstay of stock market performance in 2020, but US markets have benefited immeasurably from the upheaval created by the geopolitical uncertainty. The 1-year performance (in ascending order) of the leading American bourses reads as follows (accurate to mid-December 2020):
- S&P/TSX Composite Index – up 3.75%
- NYSE Composite Index – up 5.94%
- Dow Jones Industrial Average – up 7.74%
- S&P 500 Index – up 17.52%
- NASDAQ Composite Index – up 45.33%
In Europe, the 1-year performance (in ascending order) of the leading European bourses reads as follows (accurate to mid-December 2020):
- Ibex 35 Index – down 12.31%
- FTSE 100 Index – down 9.40%
- CAC 40 Index – down 5.30%
- EuroStoxx 50 PR – down 4.51%
- DAX index – up 0.85%
While the annual performance of European stock markets leaves a lot to be desired, given the crippling effects of the novel coronavirus, the 1-month performance of these stock markets has outperformed American markets by a long margin. For example, the Ibex 35 Index is up almost 20%, the CAC 40 index is up 12%, and the FTSE 100 index is up 11% over 1 month. By contrast, US markets have shown a 1 month increase of less than 9% on average.
What Stocks Are Driving Trader and Investor Interest in December 2020?
Source: StockCharts BTBT Golden Bull Ltd
In the United States, Thanksgiving is generally considered the pivot point towards blowout retail sales which began on Black Friday, continue on Cyber Monday, and explode out of control towards Christmas and New Year. For the most part, savvy investors seek out value stocks – those stocks which are trading at less than they are intrinsically valued at.
This gives them value proposition status, with strong return potential. Value stocks are evaluated in a number of ways, notably P/E ratios, and other core business metrics. When listed companies feature low P/E ratios, relative to other stocks, they may be considered value propositions. Of course, it is always best to select stock options with the lowest 1-year trailing P/E ratios.
In terms of growth stocks, various measures can be utilized for assessment purposes. These include Earnings Per Share (EPS) percentages. If the growth of the stock outpaces the average growth of the market, it can be considered a growth stock. Naturally, volatility, liquidity, and market fundamentals play a part in identifying growth stocks.
Various examples of growth stocks abound, although it is imperative that due diligence is conducted to verify the performance of any stock. The dynamic nature of trading and investing activity warrants as much. Various high-growth stocks have been identified such as the Zoom Video Communications Incorporated (ZM), Brandywine Realty Trust (BDN), and Salesforce.com Inc (CRM). Each of these stocks has outperformed expectations in 2020, particularly Internet-based companies given persistent lockdowns.
Examples of Stocks that are Rallying Heading into the Festive Season
Source: StockCharts FuelCell Energy, Inc
Some of the most interesting stocks to watch leading into the holiday shopping season include those related to the electric vehicles sector. You may want to watch these trending stocks – they have seen unprecedented growth in recent months. Companies like Fuelcell Energy Inc (NASDAQ: FCEL), and Tesla Inc (NASDAQ: TSLA) are noteworthy.
FCEL spiked in recent weeks, from a 50-day moving average price of $3.92, to its current price between $8 – $9 per share. The rapid appreciation in the stock price suggests this is a good candidate for a high growth stock, with outsized performance over a short timeframe. The Bollinger Bands present traders with valuable technical information vis-a-vis low and high points.
The lower Bollinger Band at 1.30 and the upper Bollinger Band at 11.46 indicate that the stock price is slightly above the center band at 6.38. Neither overbought, nor oversold, this particular stock appears to have significant leeway for further growth.
Source: Barchart.com Fuelcell Energy Inc (FCEL)
Clean stocks such as FCEL present as lucrative investment opportunities, but they are speculative in nature. This particular company is a pioneering entity in the design, manufacture, and operation of stationary fuel cell power plants. Based in the US, with operations capacity in Germany, England, and South Korea, this company is focused on clean energy production. The recent performance of FCEL has many traders and investors interested, given that it has spiked tremendously in recent weeks.
Yet the 5-year performance of the stock paints a completely different picture, and reframes this proposition for investors. In 2014, the stock was trading around $350 – $400 per share, and its precipitous declines in recent years indicate an unprecedented loss of confidence, liquidity, and trading volume. Recently, the stock tripled in value (from a low base), which bodes well for trading purposes, but remains a high-risk proposition given the ‘pump and dump’ nature of these types of anomalous movements. When stocks rise rapidly, as is the case with FCEL, timing of trades becomes crucial.
Source: StockCharts Tesla Inc (NASDAQ: TSLA)
Another high-value proposition for traders is Tesla. This electric vehicle company is currently trading around $650 on the NASDAQ, with sustained gains over the course of 2020, particularly since the stimulus measures were passed midway through the year. When the Bollinger Bands are brought into the equation, we can see a lower band price at 360.42, a center band at 520.76, and an upper band at 681.10. As the current price of TSLA approaches the upper band, the stock moves into overbought territory and will be subject to a correction based on the technical indicators. Presently, there is some leeway, indicating further upward momentum is possible.
Source: Barchart.com Tesla Inc (TSLA)
The 50-day moving average price of Tesla – the short-term measure – is $463.93, and the long-term moving average is $290.64. Given these indicators, Tesla is definitely a short-term bullish stock moving into the festive season. TechCrunch recently reported that Tesla filed to sell $5 billion in shares amid ballooning stock prices. The filing with the US SEC (Securities and Exchange Commission) is being used to access capital from the markets.
Tesla closed Q3 2020 with $2.4 billion in operating cash flow, and slightly less than $1.4 billion in free cash flow. The company has also reported spiraling operating costs year on year, with another $930 million in operating costs in Q3 2019, versus $1.25 billion in operating costs in Q3 2020. Massive building projects in Texas and Germany have been cited as the reasons for growing costs.
A Caveat for Traders and Investors
Stock selection is just as important as timing stock trades to perfection. While the aforementioned financial securities present as viable investment options at the time of writing, anything can happen at any time. Stocks are volatile by their very nature, and myriad market factors can exert downward pressure on stock prices. The prices represent speculative sentiment, which is often overinflated with bullish expectations. Equitable stock prices typically arise after rapid appreciation in pricing is followed by profit-taking. The stock then re-settles at a rate that the market deems balanced. This give-and-take can occur many times during trading cycles.
