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The Most Wonderful Time of the Year…For Stocks

 November 21, 2012 11:42 AM

(By Frank Holmes) November hasn't been living up to its reputation as one of the best months for U.S. stocks. Equity investors have been fed a cornucopia of negative news that has been difficult to digest, including the outcome of the "fiscal cliff," the front page photos of rioting in the eurozone, and the escalation of geopolitical risk in the Middle East.

As important as it is to stay informed on global events, don't let short-term events affect your long-term investments. It may be more profitable to let seasonal trends guide your decision making. Take a look at the bar chart below, which shows three-month rolling returns for the S&P 500 Index during the past eight decades.

Going back to 1928, the best three-month time period to invest in the U.S. stock market has been November through January. On average, stocks have climbed 3.34 percent during this period. The December through February timeframe has also been a historical gain for stocks, averaging 2.49 percent.

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Some market experts chalk it up to the Santa Claus rally in which investors tend to make adjustments for tax purposes or put their year-end bonuses to work in the market. There's also the January Effect, when small-capitalization stocks outperform their larger counterparts.

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In addition to these historical trends, there are plenty of positive reasons to be bullish on stocks this year. Alexander Green, Investment U chief investment strategist, lists 10, including the accommodative policies of the Federal Reserve, low interest rates making stocks attractive relative to cash, little inflation, stabilization of housing prices and the S&P's compelling price-to-earnings of 12 times.

Regardless the investment reason, for stocks, it appears that now may be the most wonderful time of the year.

The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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