Positioning for a Year-End Rally: Why Dips in November Present Strategic Entry Points

The stock market's seasonal tendencies have long captivated investors, offering a roadmap of opportunities and risks as the calendar turns to November and December. Historical data reveals a compelling narrative: November, often a month of caution, has historically been followed by December rebounds, creating a window for strategic entry into equities. As the year draws to a close, understanding these patterns-and the sentiment shifts that amplify them-can help investors position for a potential year-end rally.

Seasonal Strength: November and December's Historical Performance

November has consistently demonstrated resilience in equity markets. Since 1927, the S&P 500 has risen 59% of the time in November, with an average gain of 1%. Over the past 50 years, this trend has strengthened, with the index rallying approximately 73% of the time and averaging a 2% gain. December, meanwhile, has historically been even more reliable, with the S&P 500 posting a 73% positive return rate and an average gain of 1.6%. This late-year momentum is often fueled by optimism around holiday spending, tax-loss harvesting, and year-end portfolio rebalancing.

The correlation between November performance and December rebounds is particularly striking. For instance, in 2023, the S&P 500 surged 9% in November before adding another 4% in December. Similarly, 2024 saw a 5.7% gain in November, reflecting a post-election-year optimism that often spills into December. These patterns suggest that dips in November-when sentiment is typically cautious-can serve as attractive entry points for investors willing to capitalize on the market's seasonal bias.

Sentiment Shifts: November's Role as a Barometer

Investor sentiment in November often acts as a precursor to December's performance. In November 2025, however, the landscape appears unusually challenging. The University of Michigan Consumer Sentiment Index recorded a preliminary reading of 50.3, the second-worst result in history, signaling widespread pessimism about economic conditions and inflation expectations. Meanwhile, the AAII Sentiment Survey revealed that 43.6% of investors remain bearish about the short-term outlook for stocks, while only 32.6% are bullish. Such extremes in bearish sentiment, while concerning, often precede rebounds, as markets tend to overcorrect during periods of fear.

Historically, the S&P 500's forward price-to-earnings (PE) ratio has also served as a contrarian indicator. As of late October 2025, the index's forward PE reached 23.1-a level observed just once in the last 25 years and historically associated with subsequent bear markets. Yet, December's historical strength suggests that even in years marked by elevated valuations or weak sentiment, the market may still rally. For example, in 2022, despite a dismal year for equities, the S&P 500 rebounded modestly by 2.5% in December.

Strategic Entry Points: Lessons from the Past

The interplay between sentiment and seasonal trends has historically created opportunities for investors to buy low in November and sell high in December. Consider 2023, when the S&P 500's November surge was driven by optimism around earnings and holiday spending. Similarly, in 2024, a post-election-year rally-bolstered by a 5.7% November gain-set the stage for a strong finish to the year. These examples underscore the importance of viewing November dips not as warnings, but as potential inflection points.

Sector performance further reinforces this strategy. Consumer discretionary, technology, healthcare, and industrial stocks have historically outperformed during November and December, with average gains ranging from 2% to 3%. In 2025, the Federal Reserve's recent rate cuts and trade-related optimism could further support these sectors, particularly as investors seek growth in a more accommodative economic environment.

Conclusion: Balancing Caution and Opportunity

While historical trends and sentiment extremes suggest a favorable setup for a December rebound, investors must remain cautious. The S&P 500's year-to-date return of 12.9% as of late November 2025 still lags behind the 21.9% average annual return seen in years where the index peaked in December. However, the combination of seasonal strength, overbought sentiment, and sector-specific tailwinds creates a compelling case for strategic entry into equities.

For those willing to navigate the volatility of November, the data suggests that patience-and a disciplined approach to risk management-could be rewarded with a robust year-end rally. As the market turns its attention to December, the key will be to balance historical insights with real-time economic signals, ensuring that positioning aligns with both the rhythm of the calendar and the pulse of the market.