The Santa Claus Rally

As Christmas nears talk of the beloved Santa Claus rally starts to make the rounds on Wall Street. Ole’ Saint Nick not only delivers gifts to good little boys and girls but traders too. The Stock Trader’s Almanac suggests that Santa Claus typically ushers in a brief, positive, and notable market rally during the final five days of the year and the initial two days of January. This has been good for an average 1.6% gain since 1969 (1.5% since 1950).”

While the Almanac includes only seven trading days in the official Santa Claus Rally, the reality is Christmas sits in the middle of what is historically the best time of the year for stocks. This is from Eddy Elfenbein of Crossing Wall Street:

“During the 16-day period spanning from December 22nd to January 6th, the Dow has typically experienced an average increase of 3.23%. That’s 41% of the Dow’s average annual gain of 7.87% occurring over less than 5% of the year. (It’s really even less than 5% since the market is always closed on December 25th and January 1st. The Santa Claus Stretch has made up just 3.8% of all trading days.)”

That’s a lot of gain packed into a very small time frame, no?

Thus far this year December hasn’t exactly been a month to brag about for the bulls. The S&P 500 Index is actually down 1.1% so far. And yet, traders shouldn’t be too hasty in counting out Santa Claus’ ability to deliver. It turns out December’s historically bullish returns usually come in the back half of the month. For our final chart let’s take a look at the average return of December for the Dow Jones Industrial Average since 1950 and compare it to this year so far (click to enlarge).

As you can see we haven’t really followed the script very well. Time will tell if Santa can work his magic in the coming two weeks. Perhaps tomorrow’s Fed meeting will prove the final hurdle to overcome before the market grinds higher into year-end.

Author Profile

Jonas Taylor: Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.