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Visual Capitalist: Do you believe in the Santa Claus Rally?

by Jeff Desjardins | posted with permission of Visual Capitalist | December 28, 2018

Visual Capitalist Do you believe in the Santa Claus rally?

The Chart of the Week is a Friday feature from Visual Capitalist.

 

Just as children eagerly anticipate the arrival of the big man in the red suit, stock traders have a similar holiday tradition of importance.

According to the 2019 Stock Trader’s Almanac, there’s an average 1.3% market rally in stocks that occurs every year during the holidays. Dubbed the Santa Claus Rally, it’s happened about 75% of the time since 1969.

And this year in particular, after one of the worst months for the market in recent memory, it’s no secret that investors have their hopes up for a sizable present under the tree.

Recent rally history

Although the Santa Claus Rally has historic significance going back many decades, over the more recent period it’s been much more elusive.

Here is the data over the last five years.

We’re using the time period as defined by the Trader’s Almanac (last five trading days of December, and first two in the New Year), and S&P 500 Index prices.

 

Year Day 1* Day 7** Change
2013-14 1828.02 1831.37 0.2%
2014-15 2083.25 2020.58 -3.0%
2015-16 2063.52 2016.71 -2.3%
2016-17 2260.25 2270.75 0.5%
2017-18 2684.22 2713.06 1.1%

Data for S&P 500, *Opening price **Closing price

 

As you can see, Santa provided a nice gift to traders (1.1%) last year—but in two of the previous holiday stretches, Wall Street must have been far naughtier.

During the 2014-15 and 2015-16 seasons, the S&P 500 saw -2.7% returns, a proverbial lump of coal in portfolio stockings.

Do you believe?

No one is really sure why the Santa Claus Rally happens, but various theories have been proposed.

Some say investors are buying in anticipation of the January effect or that it happens as a result of tax reasons. Others say it’s a period of time where institutional investors are home with their families, and bullish retail investors take control of the market.

Either way, it seems after a brutal December—which included the worst week for the Dow (-7%) since the financial crisis—the market could benefit from the Santa bump this year.

At time of publication (December 28, 4 p.m. ET), the S&P 500 is up 5.7% from Christmas Eve lows— though there are still a few days left in the typical rally time window to see if the gains hold.

Posted with permission of Visual Capitalist.

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