December Stock Market Forecast Means Play These Stocks

The December stock market forecast includes more record closes for the S&P 500 (47 for the year) and Dow Jones Industrial Average (31 for the year).

December stock market forecastThose milestones have left investors wondering where stocks are heading as we enter the final stretch of 2014.

"With the Dow Jones Industrials and the S&P 500 indices repeatedly making new highs, chances are better-than-good that markets will rally through year-end," Money Morning Capital Wave Strategist Shah Gilani told investors Nov. 17.

In fact, Gilani sees the Dow hitting 18,000 before we say good-bye to 2014.

And a lot of the momentum behind a stock market rally right now is due to the fact that it's just that time of year...

Another December Stock Market Rally

Markets are entering what is typically the strongest time of the year. December has been the best-performing month for the DJIA over the past 100 years.

And dating back to 1990, the S&P 500 Index has averaged an annual gain of 2.3% from Thanksgiving through the end of the year, with positive results 83% of the time, according to data from Bespoke Investment Group. If that trend continues this year, and you tack a 2.3% gain onto the S&P's year-to-date gain of 12%, that would bring the broad based benchmark's 2014 return comfortably into double digit territory.

This December looks well positioned for a strong finish for a few reasons...

"There are really no headwinds stocks are facing," Gilani said on FOX Business Nov. 25. "Stocks really like to travel the path of least resistance, which is up and will continue to be up."

For one, any investors who missed this recent market rally will jump in for end-of-year gains.

"A lot of institutional investors missed this rally so they're piling on late. Hedge funds got beaten up in October so they're piling on trying to get the market higher so they can have some positive returns by year end. Everything's working out to the market's benefit," said Gilani.

Plus, for the first time in a long while, the economy is expected by grow by about 3% into the end of 2014 and start of 2015.

That means we have the foundation for healthy earnings growth for stocks for the first time in several years. And earnings growth, which averaged a robust 7.9% in Q3 2014 according to FactSet, fuels stock price gains.

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Wharton School professor Jeremy Siegel has a similar bullish year-end target.

"I believe the next six or seven weeks are going to take us beyond 18,000 on the Dow," Siegel said to CNBC.

Gilani said the best way to profit from this end-of-year rally is through stocks that the institutional money will target.

"The best opportunities will be getting into big-cap stocks that have lagged in the recent rally to new highs," said Gilani. These will be the stocks that the big money will look to push higher when they try to snag last-minute year-end gains.

"Big-caps with good earnings that haven't moved up as much will be viewed as undervalued and ripe for a bounce," he said.

For a complete list of our recent Money Morning best stocks to buy, go here.

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