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 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. Historically, this seven-day period has brought good news for investors, giving them another reason to cheer during the holiday season. A Santa Claus rally in the stock market refers to the tendency for the S&P 500 to increase in the final five trading days of December and the first two days of January in the new year. A Santa Claus rally has occurred 59 times since 1950, according to the Stock Trader’s Almanac.
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. If you enjoy reading the https://www.day-trading.info/currency-trading-strategies-5-powerful-forex/ 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. Just don’t go into it thinking it’s a surefire way to make a large, quick profit.
- Not only that, but it achieved this finding using a less-generous timeframe that aimed to eliminate the positive influence of a possible January effect.
- Interestingly, the Santa Claus rally is observed in stock markets around the world.
- For the average return of the week leading up to Christmas, the so-called Santa Claus rally, we calculated a +0.385% total return, with 13 winning weeks, five losing weeks, and two unchanged weeks.
- During that particular seven-day trading period, the S&P 500 was up an average 1.3% a year dating to 1950 and was positive in 79% of those years, according to an analysis by Michael Batnick, managing partner at Ritholtz Wealth Management.
Since 1950, the S&P 500 has gained an average of 1.3% during the seven-day period in which the rally takes place, and it’s gained in 34 of the past 45 years. However, there is no clear cause for the Santa Claus rally, and there’s no guarantee that it will continue. In 2018, the S&P 500 finished the month with a 6.6% gain after December 24, which were the last four trading days of the month.
The S&P 500 was positive during those seven days in 15 of the 20 years — or 75% of the time, FactSet found. Others insist that the Santa Claus Rally is related to increased holiday spending. In fact, some analysts suggest that strong retail spending is seen as an important economic indicator of economic growth and promotes bullish buying behavior as a result. High year-end sales figures have a tendency to drive retailer stock prices up in anticipation of good quarterly returns.
Stock Basket
In early December, investors looking to reduce their taxable gains and rebalance their portfolios often sell stocks that have lost value, a practice called tax-loss harvesting. This large-scale selling, it’s theorized, depresses many stocks’ prices and sets the stage for year-end gains. Each year, when the days are at their shortest and retail workers’ shifts are at their longest, market pundits speculate about the likelihood and magnitude of a year-end surge in stock prices. For buy-and-hold investors and those saving for retirement in 401(k) plans, the Santa Claus rally does little to help or hurt them over the long term. It is a news headline happening on the periphery but not a reason to become more bullish or bearish during Santa Claus rallies or the January Effect. Some investors may be executing tax-loss harvesting and repurchases or investing year-end cash bonuses into the market.
Motley Fool Investing Philosophy
The other scenario suggests the Santa Claus rally occurs in the week following Christmas, up to and including the first two trading days of the New Year. After studying the returns of both scenarios, we believe the Santa Claus rally, to the extent that it exists, occurs in the week leading up to Christmas. Some researchers believe one reason for https://www.topforexnews.org/news/best-forex-crm-solution-forex-crm-system-provider/ the Santa Claus rally is bullish investors’ sentiment as people are generally optimistic around the holiday season. The unlikeliness of the government or regulators announcing any bad news during the holidays may be the driving force behind this optimism. Bankrate.com is an independent, advertising-supported publisher and comparison service.
To some investors, January may also be the best month to begin an investment program or follow through on a New Year’s resolution. While Santa Claus can be counted on to deliver the presents 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. 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.
Related stock market topics
Historically, the Santa Claus Rally has occurred 76% of the time between 1950 to 2019. According to the 2019 Stock Trader’s Almanac, the market has risen an average of 1.3% each year during that period. While the Santa Claus Rally was originally defined as lasting just seven days, some analysts and commentators tend to use the term more broadly to refer to longer time periods or even the entire month of December. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.
What Is a Santa Claus Rally?
Observing the Santa Claus rally is common, but trying to trade the phenomenon is another matter. 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. The market generally responds positively to divided government due to the relative predictability that comes with legislative gridlock.
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Republicans took the House and Democrats retained control of the Senate in this year’s midterm elections. « Midterm elections, no matter what, have a tendency to be very bullish, and the Santa Claus rally continues through the next three, six, 12 months, » he said. Traders should be wary of market talk surrounding the notion of a Santa Claus rally, and stay fixed on the current market environment. While we can expect Santa Claus to deliver presents on time, we can’t expect him to always deliver reliable stock-market gains.
If history is a guide, stock investors may be poised to get a gift over the holidays. But this compensation does not influence the 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 the average return of the week leading up to Christmas, the so-called Santa Claus rally, we calculated a +0.385% total return, with 13 winning weeks, five losing weeks, and two unchanged weeks. More important, the average winning week gave a +1.85% return, while the losing weeks averaged a -3.28% return, skewing the risk/reward ratio against the trade (being long S&P 500).
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. A Santa Claus rally is the tendency for the S&P 500 index to increase over the final five trading days of December and the first two trading days cryptocurrency prices charts and crypto market cap new of January. These seven days have historically shown higher stock prices 79.2% of the time, reflected in the S&P 500. The Stock Trader’s Almanac compiled data during the 73 years from 1950 through 2022 and showed that a Santa Claus rally occurred 58 times (or roughly 80% of the time), with growth in the S&P 500 by 1.4%. A Santa Claus rally is the sustained increase in the stock market that occurs around the Christmas holiday on Dec. 25.