The weather is getting colder and the holidays are just around the corner. From Thanksgiving to New Year’s, the next several weeks are a cheerful time for people across the country.
It also tends to be a cheerful time for markets. The proverbial "Santa Claus" rally is not a myth. While it's never a guarantee in any particular year, the market has historically rallied during the holiday period.
In fact, December is the best month of the year for gains in the S&P 500, with an average increase of 1.67 percent for the index. That's followed closely by the average increase of 1.53 percent for November (the second-best month), and 1.09 percent for January.
Perhaps this seasonal pattern is a reflection of investors' optimism about the New Year. Or perhaps peoples' cheerful mood in the real world filters into their investment decisions. We can only speculate about the reason.
But while it's an open question why the overall market climbs during the holidays, for certain sectors within the market, it's obvious. There are holiday plays that are direct beneficiaries of the winter months.
Though retail sales have been getting less seasonal over the past few decades, the holidays still remain the most important time of the year for most stores. All retail segments typically see a seasonal increase in sales during December, with the exception of autos, gas stations and building materials, according to a report by Deloitte University.
Of course, it all comes down to expectations. Retailers are already expected to see a bump in their sales during this period, so in order for them to outperform, sales must exceed what the market is anticipating.