Market Minute: Seasonality Trends are in Favor for Equity Bulls

The late cycle bull market in equities may continue to run through the end of this year as new all-time highs continue to print for the major market averages. From a seasonal perspective, December typically posts positive returns more often than any other month of the year. In addition to tailwinds from the Fed who are on track to reduce borrowing costs later this month, incoming economic data continue to grow positively. ISM non-manufacturing earlier this week showed that services continue to drive the economy ahead. The ISM Services PMI fell from 56 to 52.1, while the S&P Global Services PMI rose from 55 to 56. Both data points suggest economic expansion and are significant to GDP since services represent approximately three quarters of private sector economic activity. Today’s non-farm payroll report shows 227,000 new jobs created for the month of November versus the 211,000 estimate. More importantly, October’s weak report was revised higher to 36,000 new jobs from the original 12,000 number. 

Assuming an extension of corporate tax cuts from the incoming administration, investors may continue to reap the benefits of bottom-line profits. However, high valuations and extremely high sentiment in pockets of the artificial intelligence technology stack may induce a valuation correction, as consolidation of the bullish trend is possible into the beginning of the year due to normalized profit-taking.