The new coronavirus strain has quashed talk of a Santa Claus rally, but history suggests this topsy-turvy year may yet end on a high note.
The Santa Claus rally refers to the last five trading days of December and the first two trading days of January. Since 1950, notes the Stock Trader’s Almanac, the S&P 500 has averaged gains of 1.3 per cent over this period.
That sounds modest, but it’s one of the best seven-day periods in the year. Additionally, research suggests Christmas strength is evident across most international markets.
A fluke? Not necessarily. The Santa rally can be partly explained by the well-documented turn-of-the-month effect – stocks’ tendency to outperform at the beginning and end of months. Some evidence indicates stocks often gain in advance of holidays, while seasonal optimism and cheer is another potential factor.
What if stocks slip? Is there any truth to the idea a poor Christmas portends a poor year, as expressed in the old adage that “if Santa fails to call, bears may come to Broad & Wall”?
No: market historian Mark Hulbert crunched the data and found no correlation between Christmas performance and the subsequent year.
In other words, hope for another “short, sweet, respectable rally”, as the Almanac puts it, but don’t panic if Santa skips 2020.
