Santa Claus rally: Difference between revisions
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{{Short description|Annual stock market calendar effect}} |
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A '''[[Santa Claus]] rally''' is a rise in [[stock]] prices in the month of December, generally seen over the final week of trading prior to the new year.<ref name=":0">{{Cite web|url=https://finance.yahoo.com/news/santa-claus-rally-horizon-195226878.html|title=Is A Santa Claus Rally On The Horizon?|website=finance.yahoo.com|language=en-US|access-date=2018-12-17}}</ref><ref name=":1">{{Cite web|url=https://www.wsj.com/articles/u-s-stocks-need-a-santa-claus-rally-to-avoid-a-losing-year-11545022860|title=U.S. Stocks Need a Santa Claus Rally to Avoid a Losing Year|last=Menton|first=Jessica|date=Dec. 17, 2018|website=The Wall Street Journal|archive-url=|archive-date=|dead-url=|access-date=}}</ref> It is a type of calendar effect.{{Citation needed|date=December 2018}} |
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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.,<ref name=Yahoo>{{Cite web | url=https://finance.yahoo.com/news/stock-market-santa-claus-rally-morning-brief-105758501.html | title=Santa Claus Rally | first=Sam | last=Ro | work=[[Yahoo]] | date=December 24, 2020}}</ref><ref name=investopedia>{{Cite web | url=https://www.investopedia.com/terms/s/santaclauseffect.asp | title=Santa Claus Rally | first=WILL | last=KENTON | work=[[Investopedia]] | date=November 8, 2018}}</ref> According to the 2019 ''Stock Trader's Almanac'', the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969.<ref name=investopedia/><ref name=hohoho>{{cite news | url=https://www.cnbc.com/2018/12/21/the-santa-claus-rally--no-ho-ho-ho--.html | title=The Santa Claus rally: No ho-ho-ho | first=Bob | last=Pisani | author-link=Bob Pisani | work=[[CNBC]] | date=December 21, 2018}}</ref> Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period. |
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However, in the weeks prior to [[Christmas]], stock prices have not gone up more than at other times of the year.<ref>{{cite news | url=https://www.marketwatch.com/story/santa-claus-rally-is-just-another-christmas-story-2018-11-20 | title=Opinion: Santa Claus Rally is just another Christmas story | first=Mark | last=Hulbert | author-link=Mark Hulbert | work=[[MarketWatch]] | date=November 21, 2018}}</ref><ref>{{cite journal |last1=Agrrawal |first1=Pankaj |last2=Skaves |first2=Matthew |title=Seasonality in Stock and Bond ETFs (2001—2014): The Months Are Getting Mixed Up but Santa Delivers on Time |journal=The Journal of Investing |date=31 August 2015 |volume=24 |issue=3 |pages=129–143 |doi=10.3905/joi.2015.24.3.129|s2cid=155997185 }}</ref> |
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There is no generally accepted explanation for the phenomenon.<ref name=":0" /> The rally is sometimes attributed to increased investor purchases in anticipation of the [[January effect]],<ref name=":0" /> an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year.<ref name=":0" /><ref name=":1" /> Other reasons for the rally may be fund managers "window dressing" their holdings with stocks that have performed well,{{Citation needed|date=December 2018}} and the domination of the market by less prudent retail traders as bigger institutional investors leave for December vacations.<ref name=":0" /> |
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In 2024-2025, the S&P 500 completed a reverse Santa Claus rally by selling off during every business day between Christmas and New Year’s, a historic first for the index.{{Citation needed|date=January 2025}} |
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The Santa Claus rally is also known as the "December Effect" and was first recorded by Yale Hirsch in his Stock Traders Almanac in 1972.<ref>{{cite web |url=https://finance.yahoo.com/blogs/breakout/santa-claus-rally-not-believe-153852263.html |title=The Santa Claus Rally: It’s Not Make Believe |author=Matt Nesto |date=December 18, 2012}}</ref> An average rally of 1.3% has been noted during the last five trading days of December for the NYSE since 1950.<ref name=":0" /><ref>{{Cite news|url=https://www.reuters.com/article/us-global-markets-idUSKBN1OG01T|title=Global stocks dip as 'Santa Claus rally' elusive, oil rises|date=2018-12-17|work=Reuters|access-date=2018-12-17|language=en}}</ref> December is typically also characterised by highest average returns, and is higher more often than others.<ref name=":0" /> |
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The Santa Claus rally was first recorded by Yale Hirsch in his ''Stock Trader's Almanac'' in 1972.<ref>{{cite web | url=https://finance.yahoo.com/blogs/breakout/santa-claus-rally-not-believe-153852263.html | title=The Santa Claus Rally: It's Not Make Believe | first=Matt | last=Nesto | date=December 18, 2012}}</ref> |
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The failure of the Santa Claus rally to materialise typically portends a poor economic outlook for the coming year; a lack of the rally has often served as harbinger of flat or [[Market trend#Bear market|bearish]] market trends in the succeeding year.<ref name=":1" /><ref name=":0" /> |
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The [[Dow Jones Industrial Average]] has performed better in years following holiday seasons in which the Santa Claus rally does not materialize.<ref>{{cite news | url=https://www.marketwatch.com/story/2018s-stock-market-santa-rally-is-leaving-this-message-for-2019-2018-12-31 | title=Opinion: 2018's stock-market Santa rally is leaving this message for 2019 | first=Mark | last=Hulbert | author-link=Mark Hulbert | work=[[MarketWatch]] | date=January 2, 2019}}</ref><ref name=hohoho/> |
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==See also== |
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* [[Calendar effect]] |
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* [[Financial market efficiency]] |
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* [[Sell in May]] and go away |
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== |
==Causes== |
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There is no generally accepted explanation for the phenomenon.<ref name=investopedia/> The rally is sometimes attributed to the following: |
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{{reflist}} |
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* Increased investor purchases in anticipation of the [[January effect]]<ref name=investopedia/> |
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==External links== |
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* Lighter [[Volume (finance)|volume]] due to holiday vacations makes it easier to move the market higher<ref name=hohoho/> |
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* [http://asxiq.com/blog/santa-claus-rally-backtesting-results-on-all-ords Blog - Santa claus rally backtesting results on all ords] |
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* A slow down in [[tax-loss harvesting]] that depresses prices at the beginning of December<ref name=hohoho/> |
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* [[Short (finance)|Short]] sellers / pessimistic investors tend to take vacations around the holidays<ref name=investopedia/> |
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==References== |
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{{Econ-stub}} |
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{{Reflist|1}} |
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* [https://www.researchgate.net/publication/281643449_Seasonality_in_Stock_and_Bond_ETFs_2001-2014_The_Months_Are_Getting_Mixed_Up_but_Santa_Delivers_on_Time_JOI_2015] |
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{{DEFAULTSORT:Santa Claus Rally}} |
{{DEFAULTSORT:Santa Claus Rally}} |
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[[Category:Stock market]] |
[[Category:Stock market]] |
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[[Category:Calendar effect]] |
[[Category:Calendar effect]] |
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[[Category:Behavioral finance]] |
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Latest revision as of 04:55, 3 January 2025
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.,[1][2] According to the 2019 Stock Trader's Almanac, the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969.[2][3] Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.
However, in the weeks prior to Christmas, stock prices have not gone up more than at other times of the year.[4][5]
In 2024-2025, the S&P 500 completed a reverse Santa Claus rally by selling off during every business day between Christmas and New Year’s, a historic first for the index.[citation needed]
The Santa Claus rally was first recorded by Yale Hirsch in his Stock Trader's Almanac in 1972.[6]
The Dow Jones Industrial Average has performed better in years following holiday seasons in which the Santa Claus rally does not materialize.[7][3]
Causes
[edit]There is no generally accepted explanation for the phenomenon.[2] The rally is sometimes attributed to the following:
- Increased investor purchases in anticipation of the January effect[2]
- Lighter volume due to holiday vacations makes it easier to move the market higher[3]
- A slow down in tax-loss harvesting that depresses prices at the beginning of December[3]
- Short sellers / pessimistic investors tend to take vacations around the holidays[2]
References
[edit]- ^ Ro, Sam (December 24, 2020). "Santa Claus Rally". Yahoo.
- ^ a b c d e KENTON, WILL (November 8, 2018). "Santa Claus Rally". Investopedia.
- ^ a b c d Pisani, Bob (December 21, 2018). "The Santa Claus rally: No ho-ho-ho". CNBC.
- ^ Hulbert, Mark (November 21, 2018). "Opinion: Santa Claus Rally is just another Christmas story". MarketWatch.
- ^ Agrrawal, Pankaj; Skaves, Matthew (31 August 2015). "Seasonality in Stock and Bond ETFs (2001—2014): The Months Are Getting Mixed Up but Santa Delivers on Time". The Journal of Investing. 24 (3): 129–143. doi:10.3905/joi.2015.24.3.129. S2CID 155997185.
- ^ Nesto, Matt (December 18, 2012). "The Santa Claus Rally: It's Not Make Believe".
- ^ Hulbert, Mark (January 2, 2019). "Opinion: 2018's stock-market Santa rally is leaving this message for 2019". MarketWatch.