Santa Claus Rally: What And When Is It?

The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Just like other calendar effects in the stock market, observers disagree over whether the Santa Claus rally is valid or useful. If you’d like to draw your own conclusions, here are some additional points to consider. Another theory is that many corporations hand out annual bonuses at year-end, and all the extra money workers receive gets spent or invested, pushing stock prices up.

1. Based on the S&P 500, there were 13 weeks with a positive return, five with a negative return, and two with no change.
2. But there’s no consensus on how their absence or reduced activity might contribute to a Santa Claus rally.
3. Also, many employees receive year-end bonuses that can be invested in the market.
4. Without this sign, we get a brief, self-perpetuating burst of bullish activity.
5. “When you think of a Santa Claus rally, it’s all about anticipating or looking forward,” said Terry DuFrene, global investment specialist at J.P.

Similarly in 2008, during the stock market crash caused by the financial crisis, stocks actually got a Santa Claus rally in the midst of a larger bear market rally. During the seven-day period, the S&P 500 gained 7.5%, although it would crash again in the first two months of 2009 before bottoming out on March 9. Generally, the Santa Claus rally refers to the stock market’s history of rising over the last five trading days of the year and the first two market days of the new year.

This rally brought some respite to the index that had, until then in the year, dropped more than 40%. The January Barometer is a theory that claims that the returns experienced in the January stock market predict the performance of the market for the upcoming year. When investors consider data that spans 20 years of performance of the Standard & Poor’s 500 (S&P 500) in the week leading up to Dec. 25 from 2002 to 2022, there is minimal evidence of any discernible Santa Claus rally.

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If it’s that simple, analysts should do us all a favor and promulgate more calendar effects beyond the presidential election year cycle, January barometer and best six consecutive months. The Santa Claus rally happens after Christmas, so we can’t clearly attribute it to holiday spending. Still, the period between Christmas and New Year’s, when many people are off work, tends to be busy with shopping activity from returning unwanted gifts, buying unreceived wish-list items and mining year-end sales. However, short-term traders may take more action in the hopes of positioning themselves for a rally.

The study also examined returns in 15 other developed countries, so the total sample included eight countries where a majority of residents identify as Christian and eight where they don’t. The flaw with this theory is that there is no single time of year when most corporations pay bonuses; it varies by company. Without this sign, we get a brief, self-perpetuating burst of bullish activity. “When you think of a Santa Claus rally, it’s all about anticipating or looking forward,” said Terry DuFrene, global investment specialist at J.P.

The second major question is whether the Santa Claus rally really even exists. Again, looking at the historical performance of the S&P 500 over the last two decades, we conclude that it is https://www.topforexnews.org/news/forex-robot-trading-software/ nearly a toss-up between a tangible rally and a normal trading week. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

What Is the January Barometer?

The holiday season might have investors feeling more optimistic, especially with corporations and governments reluctant to announce bad news during this period if they can avoid it. In addition, investors who believe in the January effect might hope to bolster their returns by snapping up shares at the end of December that they expect to rise soon thereafter. https://www.forex-world.net/stocks/chevron/ Yale Hirsch, the founder of the Stock Trader’s Almanac, coined the “Santa Claus Rally” in 1972. He defined the timeframe of the final five trading days of the year and the first two trading days of the following year as the dates of the rally. Using the week leading up to Dec. 24 over two decades, we find there is no tangible or reliable Santa Claus rally.

How Does A Santa Claus Rally Work?

Over the years, many analysts have tried to speculate about the reasons for the Santa Claus rally. The perceived causes for the rally include an overall, holiday-season spirit, in which retail traders hold an outsize bullish outlook and institutional players tend to step back from the market. There are two schools of thought about the timing of the Santa Claus rally effect on the Standard & Poor’s (S&P) 500 Index. The first suggests the Santa Claus rally occurs in the week leading up to and ending with Dec. 24, Christmas Eve.

Most estimate these rallies happen in the week leading up to the Christmas holiday, while others see trends that begin Christmas Day through Jan. 2. Like the jolly bearded man it is named after, no one knows the definitive reason hire the best freelance razor developers updated daily why a Santa Claus Rally arrives in December and often gifts investors with positive returns through the holidays. Stocks usually rise over the last five days at the end of the year and the first two days of the following year.

Based on the S&P 500, there were 13 weeks with a positive return, five with a negative return, and two with no change. By comparison, S&P 500 returns were a much smaller 0.24% during all other seven-day trading periods dating to 1950, Batnick said. However, over the last 10 years from 2010 to 2020, the stock market only saw an average Santa Claus Rally of 0.38%. In some years, the stock market has also declined sharply during the days in question. For example, from 2014 to 2015 the S&P 500 experienced a decline of 3.01% and from 2015 to 2016, that index declined by 2.27%.

Interestingly, the Santa Claus rally is observed in stock markets around the world. For example, the Indian stock market exhibits a similar effect, where the last five trading days of December and the first two trading days of January tend to produce higher average returns than other days. Dubbed a Santa Claus rally, this phenomenon describes a tendency for the stock market to go up by 1% to 2% over the period spanning the last five trading days of the outgoing year and the first two trading days of the incoming one. Some market observers may also make forecasts based on whether or not a Santa Claus rally occurs. The tech bubble ended up bursting in early 2000, and 2008 produced one of the worst years for the stock market in decades as the economy plunged into recession amid the subprime mortgage crisis.

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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. But both time periods show negligible returns at best on average, making the Santa Claus rally something of a myth, just like the jolly old elf himself. A Santa Claus Rally is a seasonal stock market trend that often occurs near the end of the fiscal year. The stock market often yields positive returns during the last five business days of December and the first two business days of the new year, although this is by no means guaranteed. It was first observed by Yale Hirsch in the 1972 version of The Stock Trader’s Almanac.