Sweet November

The Santa Claus rally started early this year, and we don't think the Grinch will steal Christmas

By Joseph Lisanti

The S&P 500's 3.5% gain in November was second only to its advance in July. Last month's rise in the index would have led the pack had the month ended before Thanksgiving Day. At that point, the benchmark was up 4.9%.

In recent years, strong Novembers have been common. Four of the five most recent Novembers have seen S&P 500 gains in excess of 3%. That's better than the historical averages for the month since 1928, 1946, and 1980.

Last month, 401 of the stocks in the "500" rose in price, indicating considerable breadth in the advance. For 2005 through November, the index was up 3.1%. But if you exclude the energy sector, the advance was only 0.8%.

November was not only a good month for stock price appreciation, it was also beneficial for investors looking for income. There were 182 dividend increases in November among the 7,000 companies that report their dividend actions to Standard & Poor's. That's up 28% from a year ago and 41% from November 2003.

Last month was so good that some investors fear December will pale by comparison. In fact, since 1980, November has outpaced the final month of the year with a 2.1% average gain vs. 1.7%.

But how does the "500" perform in December when November gains are much above average? Over the past 25 years, there have been 13 instances in which the S&P 500 posted a gain of 3% or more in November. The average December gain since 1980 has been 1.7%, but in the 13 years that featured strong Novembers, the average December increase slowed to only 0.6%.

Will the market advance slow again this December? The economy looks good, with solid job growth and declining energy prices. Add to that the 1.2% rise in the S&P 500 on the first trading day in December, and it's hard to see conditions that might do much harm to stock prices by yearend.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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