This holiday season, is Wall Street expecting a visit from Santa Claus?
An age-old saying from Wall Street goes, "If Old Saint Nick fails to phone, bears might show up at Broad and Wall." According to the Stock Trader's Almanac, the Santa Claus indicator refers to the last five trading days of the current year and the first two days of the new one. This period, known as the Santa Claus Rally, stretches from December 24 to January 3.
Our research suggests that Santa might possess a foggy crystal ball. Over the past thirteen years, where the Santa Claus indicator yielded a negative return for the S&P 500, the market ended up in the red only half the time in the following year, amounting to a hit rate of less than 40%.
Although Santa's arrival doesn't offer remarkable forecasting abilities, he generally spreads good vibes most years. Since 1969, the S&P 500 has seen an average increase of 1.3% during those seven trading days. This 1.3% gain is better than the average performance for nine out of twelve months since 1950! Furthermore, the S&P 500 has a higher probability of rising more than 76% during the Santa Claus rally period, which surpasses the average probability for most periods. According to Ari Wald at Oppenheimer, the S&P 500 typically rises only 57% of the time during a regular 7-day period while averaging a gain of 0.2%. Therefore, Santa does indeed spread joy!
Historically, December has been the third-most profitable month for the S&P 500 performance.
It's intriguing to note that December returns tend to be more substantial when the S&P 500 has delivered outstanding returns by November, as per Strategas. Conversely, December returns usually take a hit when the S&P 500 records below-average year-to-date returns by November. This trend suggests that short-term momentum often carries through to December, as well as the positive impact from Santa's magic. Given that this year has potential to be the ninth-best year-to-date performance for the S&P 500 by November, we can expect it to adhere to historical patterns.
Furthermore, Strategas revealed that a strong November doesn't necessarily diminish the prospect of a better December. The S&P 500 experienced an impressive rise of 5.7% in November. Considering history, we have yet to open our presents early.
Interestingly, despite December returns tending to perpetuate the trend before the month commences, Santa has shown resilience in spreading his cheer to Wall Street, irrespective of previous returns. Over the past fourteen years with negative performance for the S&P 500 since 1969, the returns during the Santa Claus Rally period have only been negative in only four of those years.
Whether the seasonal market blessings arrive soon or if the post-election market enthusiasm fades and allows the Grinch to spoil our bullish holiday spirit remains to be seen. Despite Santa's disappointing showing last year, investors still have a favorable likelihood of staying invested throughout the holiday season. Investors might want to consider exchanging stocks with unrealized losses for exchange-traded funds (ETFs) or alternative stocks instead of opting for cash, to maximize potential tax losses before the end of the year.
The Santa Claus Rally, which takes place from December 24 to January 3, is known for being a period of positive returns for stocks.Over the past thirteen years, when the Santa Claus indicator yielded a negative return for the S&P 500, the market ended up in the red only half the time in the following year.
Historically, December has been the third-best month for S&P 500 performance.
Despite December returns often perpetuating the trend before the month commences, the Santa Claus Rally has shown resilience in spreading its cheer to Wall Street, irrespective of previous returns. Over the past fourteen years with negative performance for the S&P 500 since 1969, the returns during the Santa Claus Rally period have only been negative in only four of those years.
Although December is generally a good time for stocks, investors might want to consider exchanging stocks with unrealized losses for exchange-traded funds (ETFs) or alternative stocks instead of opting for cash, to maximize potential tax losses before the end of the year.
