U.S. Stocks Begin December Chilly; Korea's Political Chaos Roils Markets

December has kicked off on a chilly note for U.S. stocks, with markets trading mixed on Tuesday. The S&P 500 remained flat, while the Dow Jones Industrial Average fell slightly, and the Nasdaq Composite managed a 0.4% gain, driven by Apple's 1.3% rise to a new 52-week high. However, investors are bracing for potential volatility as tax loss selling may initially weigh on stocks before the year-end rally takes hold. December is historically the third-best month for stocks, with an average gain of 1.6% for the S&P 500, according to the Stock Trader's Almanac.

Meanwhile, geopolitical tensions in South Korea have sent shockwaves through global markets. President Yoon Suk Yeol's surprise declaration and subsequent withdrawal of martial law have roiled markets, with the iShares MSCI South Korea ETF plunging as much as 7.1% in U.S. trading, and London-listed shares of Samsung Electronics losing as much as 7.5%. The won also weakened by up to 2.9% against the U.S. dollar. This political uncertainty has reminded investors of elevated global risks and may impact their willingness to invest in U.S. stocks.



Amidst these headwinds, investors are eagerly awaiting the U.S. jobs report for November, set to be released this Friday. This data will be the Fed's last look at the labor market before their rate-setting meeting from December 17 to 18. Markets are currently pricing in a 72.9% chance of a 25 basis point rate cut, signaling optimism that a cut will boost U.S. stocks.

As we navigate the final stretch of the year, investors should consider diversifying their portfolios to include under-owned sectors like energy stocks, which typically perform well during periods of uncertainty. Maintaining a balanced portfolio with both growth and value stocks can help mitigate risk, as can strategic acquisitions that drive organic growth, like Salesforce's purchase of Slack.



In conclusion, while political chaos in South Korea may introduce volatility, a balanced portfolio combining growth and value stocks, along with a strategic acquisition approach, can help investors navigate these challenges. With a potential Fed easing cycle on the horizon, investors should remain focused on long-term company valuations and the enduring business models of strong companies like Amazon and Apple.