Illustrated above, the S&P 500 and Dow recorded gains over the Santa Claus Rally periods from 2017 to 2021. Only the Nasdaq Composite reported a loss in one year during the same period. Even if Santa doesn’t arrive, some analysts are still bullish on stocks in 2023. If Santa’s a no-show, the S&P 500 historically underperforms in January and over the following year.
- After another crash in early 2009, a 23% surge followed shortly thereafter.
- 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.
- Since late 1928, the S&P 500 has been positive in that stretch 78.5% of the time, according to Bank of America.
- Of note, many stock pickers in actively managed mutual funds tend to invest in value stocks.
According to Seasonax, the average gain produced by the year-end rally is equivalent to an annualised return of 50.45%. Here we take a look at its history, assess whether we’ve seen an uplift in the past, and suggest what to expect this year. Although Facet only provides information from sources it believes to be accurate, third party content is not guaranteed as to its accuracy or completeness.
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OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry. Even though 2008 produced the largest gains in this period, the S&P 500 fell 10.95% from January 5, 2009, at the end of the cum se cum sa rally, to January 31, 2009. On the contrary, the Santa Claus Rally represented a turning point for the S&P 500 heading into 2019. On December 24, 2018, the S&P 500 was amid its worst December since 1931 before rallying over 6%. The S&P 500 still ended the month with its biggest loss since the Great Depression, but the Santa Claus Rally helped pare some of those losses and then act as a springboard as January produced gains of 7.69%.
“By way of comparison, over the entire 30 year period, the S&P 500 Index itself has only generated an average annualised return of 7.52%,” it added. Seasonax found that the Santa rally begins on 15 December, with prices often pulling back prior to that date. The key elements include seasonal goodwill among investors, who are more willing to buy around Christmas.
Conversely, the market has fallen in four of the following years of the six times stocks have declined during this stretch. Hirsch’s theory came from his research of the Standard and Poor’s 500 (S&P 500) performance between 1950 and 1971 over the seven-day period stated above. Moreover, the market has been positive in 34 of the last 45 years, just over 75%. All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions.
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%. Although data has shown that the Santa Claus rally period has generated more positive returns than negative returns, there is no way for traders/investors to predict whether it will happen again. It is important to note that past performance is not indicative of future results. Given such a small historical return, and a marginally positive frequency of occurrences, traders should be extremely cautious about buying or selling based on the supposed Santa Claus rally. While Santa Claus can be counted on to deliver the presents on Christmas, the stock market cannot be relied upon to always deliver gifts.
There are also theories that the Santa Clause rallies occur because institutional investors go on vacation over the holidays and aren’t actively trading during that time. This theory requires the assumption that retail investors tend to be more bullish and, when able to Safe haven investments exert a larger impact on the market, will cause stock prices to rise. 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.
That said, any positive gain in the stock market around Christmas is virtually guaranteed to lead financial market observers to refer to the Santa Claus rally. According to The Stock Trader’s Almanac, the S&P 500 has gained an average of 1.3% since 1950 during the Santa Claus Rally periods. More recently, since the inception of the SPDR S&P 500 ETF Trust (SPY) in 1993, the Santa Claus Rally has produced gains 18 out of 27 times, Meet the Frugalwoods or about 67% of the time. According to Gordon Scott, a member of the Investopedia Financial Review Board, since 1993 all other six-day periods produced positive SPY returns 58% of the time. One is that stocks rally in the week between Christmas and New Year’s, and that carries into the second day of trading in the New Year, usually Jan 2. The other time-span definition—and our preferred one—is the week leading up to Dec. 24.
A Santa Clause rally is observed if the stock markets gain in the last five trading days of the year, going into the first two trading days of the following year. Depending on when weekends fall in a particular calendar year, the start of a Santa Claus rally could be before or after Christmas Day. 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.
For example, in 2018, the S&P 500 fell through much of the fourth quarter as Treasury yields rose. After Hirsch wrote about the pattern, it seemed to become part of the investing lexicon by the early 2000s when a number of references were made to the term in the financial media. In this examination of the Santa Claus rally, we’ll discuss the origins of the rally, why it happens, and the history behind it.
The extraordinary history of the Santa Claus Rally: Morning Brief
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To settle the charges, DBRS agreed to pay $8 million in civil penalties and KBRA agreed to pay $4 million in civil penalties, the SEC said. Credit rating agencies DBRS Inc. and Kroll Bond Rating Agency, LLC also agreed to pay civil penalties to settle SEC charges related to the record-keeping failures, the regulator added. Nevertheless, it can still be fun to look back at history and see what kinds of patterns and averages emerge. After no Santa Claus rally in 2018, the S&P 500 returned about 30% in 2019.
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It’s not fully clear whether it’s purely psychological or there are some underlying financial reasons for the year-end rally, but history has shown that stocks tend to gain at the end of the year and into the first days of January. There are numerous explanations for the causes of a Santa Claus rally, including tax considerations, a general feeling of optimism and seasonal happiness on Wall Street, and the investing of holiday bonuses. Another theory is that investors are positioning themselves for the ‘January Effect’, a separate calendar-based phenomenon in which some stocks demonstrate a propensity to rise more than others during the post-holiday period in early January. The January Effect is believed to be the result of tax-loss selling in December to lock in losses, followed by repurchases in January, in compliance with the 30-day ‘wash-sale’ rules set by the IRS for taking capital losses.
This makes sense if you think about it, as many market participants will take care of year-end position adjustments in the week before Christmas, while there is still plenty of liquidity. Further, this lull is most likely due to market participants taking the holiday break between Christmas and New Year’s. As such, for the purposes of this article, we will assign the week leading up to Dec. 25 as having the greatest potential for a “Santa Claus rally.”
Detrick also observed that a positive move during this period often came with strong returns over the month of January. There are also competing patterns coming in 2023, which is the third year of the presidential cycle with the mid-term election year, the weakest of the cycle historically, in the past. Since 1950, the third year of a presidential cycle has averaged a return of 16.8% versus 6.0% for year two, LPL Financial said. Additionally, the first quarter of year three of the presidential cycle also has been the strongest of the four quarters that year, it said. If Santa delivers a rally, the S&P 500 on average gains 1.3% in January and 10.9% for the new year 75.4% of the time, LPL said. This marks December out as having the highest average returns of any month, followed by November and January.