Every December, children and adults alike are excited to see what may have been left under the Christmas tree by jolly old Saint Nick. But Santa is not the only one who has a tendency to leave (mostly) happy surprises at the end of the year.
For many years, investors have examined a market anomaly where the stock market tends to go up in the final few days of the calendar year. Coined by Yale Hirsch, this phenomenon has become known as the “Santa Claus Rally.” Typically happening over a seven-day period, historically this stock market abnormality has generated higher stock prices almost 80% of the time since 1950. Interestingly during this period, last year (December 25th, 2024 to January 2nd, 2025), the S&P 500 did not generate a positive return for investors.
Over the last 20 years, the Santa Claus rally has generated fewer positive returns when compared to the 20th century.
There are many theories that may explain this frequently occurring rally. Some investors may tax-loss harvest during this time, while others may just feel more optimistic about the future during the holiday season. Those who receive end-of-year bonuses may put that money into the market once all the holiday shopping has finished. There is no clear-cut reason why the Santa Claus Rally sometimes occurs and sometimes doesn’t. With a couple of days of January included in the Santa Claus Rally, this rally may lead into what is known as the “January Effect.” Although history has shown this to occur more times than not, remember that this still a random outcome. Market performance is reliant upon many factors; almost never just one. It is almost impossible to accurately time the market and we remind investors that staying invested can lead to strong results over long time periods. “Long-term traders should view holiday-season price action for what it is: a toss-up amid low market liquidity that has little predictive power for the future.”
If you have questions about your investment portfolio, please contact us.
Source: Santa Claus Rally: What It Is and Means for Investors
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