Most long-term oriented investors don’t really need to spend much time obsessing over what may happen in the stock market over extremely short periods of time.
Nevertheless, it can still be fun to look back at history and see what kinds of patterns and averages emerge.
Which brings us to the Santa Claus Rally.
Coined by Yale Hirsch, founder of the Stock Trader’s Almanac, the Santa Claus Rally describes what happens over the last five trading days of the year and the first two of the next.
What makes it so special?
“Well, there isn’t a single seven-day combo out of the full year that is more likely to be higher than the 77.9% of the time higher we’ve seen previously during the Santa Claus Rally,” LPL Financial’s analysts observed after analyzing data going back to 1950. “Additionally, these seven days are up an average of 1.33%, which is the second-best seven-day combo of the year.“
Is there a reason why this happens?
“Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays—or the holiday spirit—the bottom line is that bulls tend to believe in Santa,” says LPL’s Ryan Detrick.
Detrick also observed that a positive move during this period often came with strong returns over the month of January.
What’s notable, however, is what happens when Santa doesn’t deliver.
“Going back to the mid-1990s, there have been only six times Santa failed to show in December,” LPL analysts wrote. “January was lower five of those six times, and the full year had a solid gain only once (in 2016, but a mini-bear market early in the year).”
Interesting stuff.
Reminder: Past performance is no guarantee of future results.
