Santa Claus Rally In Stocks: What It Means For Investors

The Santa Claus Rally refers to the stock market’s tendency to rise during the final five trading days of December and the first two trading days of January. This period often sees positive momentum, with stocks historically delivering higher-than-average returns compared to other times of the year. The Santa Claus Rally is a special period encompassing the last five trading days of December and the first two of January. Since 1950, the S&P 500 has provided positive returns approximately 79% of the time, averaging a gain of 1.3%. The S&P 500 experienced a substantial increase of 2.3% during the 2010 rally. Furthermore, both 2019 and the turbulent year of 2020 each yielded a 1.0% climb.

Actual market behavior depends on multiple economic factors, market sentiment, and unpredictable events. A Santa Claus rally is a jump in stock prices, observed in the final five trading days of the year, typically starting a day after Christmas and going into the first few trading days of the New Year. Historically, this seven-day period has brought good news for investors, giving them another reason to cheer during the holiday season. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system.

Santa Rally vs Other Seasonal Trends

During the seven-day period, the S&P 500 gained 7.5%, although it would crash again in the first two months of 2009 before bottoming out on March 9. It is the tendency for the market to rise in the last five trading days of the current year and the first two days of the new year. First discovered by Yale Hirsch of “Stock Trader’s Almanac,” it has produced positive returns 34 of the past 45 years for an average return of 1.4%.

If there’s a Santa Claus rally to end a year, the next year is expected to be good. A larger-than-expected increase in interest rates or signs that inflation was hotter than anticipated could fuel stock-market jitters toward year-end. The Federal Reserve is poised to continue its cycle of raising interest rates during a policy meeting next week.

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While some investors firmly believe in its existence and potential profitability, others remain skeptical and view it as nothing more than a seasonal curiosity. Like other calendar effects, including the January effect and phrases such as, “Sell in May and go away,” there is strong evidence that the Santa Claus rally is real and can predict the market’s outcome. But this compensation does not influence the Contrary opinion information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

For example, according to data compiled by LPL Research and FactSet, the Santa Claus rally period in 1999 saw the S&P 500 drop 4% and the Dotcom bubble burst in 2000. Similarly, corresponding trading days in 2007 saw the S&P 500 drop 2.5%, and 2008 saw the Great Recession. The S&P 500 has generally performed well under the Biden/Harris administration, except for the bear market in 2022. Looking ahead, with Donald Trump’s return to office, there’s optimism tied to his policies favoring lower taxes and reduced regulation—both of which can boost corporate earnings and stock prices. The Santa Claus Rally is generally observed during the last week of December and the first two trading days of January, but the duration and intensity can vary.

• Even in 2022, a more modest rise of 0.8% served to reinforce this observed seasonal trend.
• Wall Street’s year-end rally isn’t a single event but a culmination of several overlapping trends and events.
• Historically, this seven-day period has brought good news for investors, giving them another reason to cheer during the holiday season.
• Strategies may include a stop-loss level and a plan for what to do if the trade is neither profitable nor stopped out by Christmas.
• If you enjoy reading the tea leaves, however, you can try trading Santa Claus rallies for fun with money you aren’t relying on for your long-term financial security.

What a Santa Claus rally means for investors

“Since 1980, the S&P’s December high happened during the last week of this month in almost half (41 pct) of years,” she said in a recent note to clients. This combination — a strong consumer and economy, coupled with a Fed that is raising rates slowly and gradually — means the market should hold up in 2022. Meanwhile, technology — which is the largest sector in the S&P 500, is flat because some of the largest stocks (particularly Apple) have done well. Look past the largest names, and there is some selling, particularly in the more speculative tech stocks that Cathie Wood’s ARK Innovation ETF owns. The S&P 500 gained nearly 1.4% to finish the day at a fresh high of 4,791.19 — it’s 69th record close of the year. The Dow Jones Industrial Average rose about 1% to 36,302.38, and the Nasdaq Composite closed at 15,871.26, up 1.4% for the day.

This year, the seven-day stretch began Monday, with the rally off to a good start. Jon Quast has positions in Axon Enterprise, MercadoLibre, and United Rentals. The Motley Fool has positions in and recommends Axon Enterprise and MercadoLibre. It might seem too simplistic, but predicting an up market in the coming year is based on evidence going back 98 years. It looks like good ol’ Saint Nick is working his market magic again in 2023.

The first appearance of the term “Santa Claus rally” came in 1972 when market analyst Yale Hirsch discovered that market returns were abnormally high in the days after Christmas and leading up the first few days of the New Year. December tends to be among the strongest months of the year for U.S. stock performance. Since 1926, only returns in July and April have outpaced December’s average — about 1.9% and 1.7% versus 1.6%, respectively, according to data from Morningstar Direct. The Santa Claus Rally is often seen as a barometer of short-term market sentiment.

What Is a Santa Claus Rally?

Bulls have been keeping a close eye on one of the final data points for the week — Thursday’s release of the November Personal Consumption Expenditure (PCE) deflator, the Fed’s preferred tool for examining inflation. In the last 10 years, there’s been a decline just twice in the S&P 500 during the Santa Claus rally period, according to CNBC’s Robert Hum. Given its predictive power, you might expect the biggest Santa Claus rally in history to have taken place during a raging bull market, but the opposite is true. I could try to perfectly time a mountain peak, sell before a crash, and buy back in at lower prices. If there’s a Santa Claus Rally, just buy an S&P 500 index fund for the upcoming year because the odds are extremely high that it’ll make money. One day over 50 years ago, a man named Yale Hirsch noticed an interesting pattern.

A Santa Claus rally is the sustained increase in the stock market that occurs around the Christmas holiday on Dec. 25. Most estimate these rallies happen in the week leading up to the Christmas holiday, while others see trends that begin Christmas Day through Jan. 2. The holiday season tends to inspire positive sentiment, as investors anticipate better times ahead. This psychological boost often drives increased buying activity, contributing to the rally’s upward momentum.

The Fed is on a multi-year interest rate cut cycle, and I expect real estate demand to grow in the coming years. Institutional investors may adjust their portfolios during the Santa Claus Rally period, contributing to market movements. Economic data, such as employment reports alpari forex broker review and consumer spending figures, can influence investor sentiment and contribute to the direction of the Santa Claus Rally. The controversies surrounding the Santa Rally phenomenon highlight the complexities of understanding and predicting market behavior.

While Santa Claus can be counted on to deliver the presents unreal engine 4 for unity developers on Christmas, the stock market cannot be relied upon for gifts. Any positive gain in the stock market around Christmas commonly leads financial market observers to refer to the Santa Claus rally. The “January Effect” observes that stocks, particularly small-cap stocks, tend to show more robust performance in January.