S&P 500's Veterans Day to Year-End Stretch: Median 2.51% Gain, Wild Swings

The S&P 500 has gained a median 2.51% in the stretch between Veterans Day and the end of December over the past decade — but the range runs from an 8% surge in 2023 to an 8% loss in 2018, according to Dow Jones Market Data.

That's the setup facing Wall Street on Wednesday, when the stock market stays open for Veterans Day but the bond market closes. The holiday gives equities a brief buffer after Tuesday's surge in yields pushed the benchmark 10-year Treasury yield back to the 5% threshold and sent tech stocks tumbling again.

The latest yield spike follows another hot inflation print. The core worry: the Federal Reserve may need to raise interest rates more aggressively to cool inflation, which has been stuck above its 2% annual target.

What's driving inflation back up?

October's data reflected higher fuel costs from the Iran war, according to the source. Those pressures have eased in November as crude supplies increased. Global Brent crude traded around $91 a barrel on Tuesday, down from an October high of roughly $114, according to FactSet.

Wall Street's hope is that President Donald Trump might be encouraged to end the war after Republicans lost the House, Senate and many state races to Democrats. An end to the conflict could give the Fed more room to wait before increasing rates.

Where does the S&P 500 stand?

The index has been volatile since the midterms. It's still up more than 10% on the year, on pace to snap a trend of annual losses in the 2018 and 2022 midterm years. If the gains hold, the S&P 500 will beat its compounded annualized return of 8.2% since 1950, according to Dow Jones Market Data.

The gains have not been evenly felt. Big stock returns over the past four years have kept wealthier households spending, while inflation pressures and higher rates have hurt lower-income families.

Stocks tend to be weak in the runup to midterm elections, largely because of uncertainty around potential policy changes. The rest of the year often sees strength once results are known, as MarketWatch's Mark Hulbert has reported. That can pave the way for the typical year-end rally to take hold.

This year adds a new wrinkle: extreme volatility since the midterms, with the fate of the U.S. data-center buildout under intense scrutiny. Rising borrowing costs will make it more expensive for the "hyperscalers" to finance infrastructure projects that increasingly rely on debt.

Who said what on rates?

Will Compernolle, a macro strategist at FHN Financial, said that until Tuesday, Treasurys had been overbought by traders who "overextended the bond-bullish implications" of the recent patient tone from Fed officials. They are now priced closer to "fair value," he said in a client note.

Pimco economist Tiffany Wilding said a half-point hike is "now on the table for discussion" at the Fed's December meeting. If the Fed only hikes by 25 basis points, "the risk of stickier near-term inflation argues for hiking at both the December and January meetings with the risk of another in March," she said in emailed comments.

What do 5% yields actually cost?

Higher 10-year Treasury yields can decrease the value of future corporate profits while pushing up borrowing costs for households, businesses and the U.S. government.

Rates on new 30-year mortgages now sit around 7.12%, keeping the U.S. housing market on ice.

The stakes for December are clear: a Fed choosing between 25 and 50 basis points, with a market hoping the historical post-midterm strength outweighs the yield pressure.