Key takeaways
The Santa Claus rally describes a rise in the stock market over the last five trading days of December and the first two trading days of January
The seven-day combo yielded positive returns for nearly 78% of the time from 1950 to 2019
What causes this rally exactly is still unknown — possible explanations include optimism fueled by the holiday spirit and pessimistic investors taking vacations during this time
Understanding the Santa Claus rally
The Santa Claus rally was first recorded by Yale Hirsch in his Stock Trader's Almanac in 1972.
A Santa Claus rally is a calendar effect that involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the following January.
According to LPL Research, this seven-day trading period is the second-best stretch for equities at any point in the year, with an average 1.33% gain from 1950 to 2019. Moreover, the seven-day combo yielded positive returns for nearly 78% of the time.
(Source: LPL Research)
Even though historical data give us a clue, it's important to remember that past performance is no guarantee of future returns.
What causes a Santa Claus rally?
There is no generally accepted explanation for the phenomenon.
The rally is sometimes attributed to the following:
Investors invest with holiday bonuses;
Increased investor purchases in anticipation of the January effect;
Optimism fueled by the holiday spirit;
The vocation-led lighter volume makes it easier to move the market higher;
A slowdown in tax-loss harvesting that depresses prices at the beginning of December;
Some very large institutional investors, which are more sophisticated and pessimistic, tend to go on vacation at this time.
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Comment(24)
yes
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sounds phenomenal
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@Xueqihuatlah@YingHuatHuat
Santa Claus rally is the 2nd best stretch In a year for equities
When is the best stretch?
thanks , also want to know what best stretch is?
I love it
it's a mystery!
wow
Coo
Terrific
awesome
like
Mice
Güzel
dig it
so much for the Santa rally...looks like all the gains have reversed...
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