There’s a mythical phenomenon in the stock market that some historians refer to as the “Santa Claus Rally.”
Simply put, it’s the observation that historically, stocks have tended to rally during the trading days between Christmas and New Year’s.
PNC Financial Services’ Bill Stone writes about it:
According to the 2015 Stock Trader’s Almanac, since 1969 the Santa Claus rally has yielded positive returns in 34 of the past 44 holiday seasons — the last five trading days of the year and the first two trading days after New Year’s. The average cumulative return over these days is 1.6%, and returns are positive in each of the nine days of the rally, on average. Nevertheless, each year there is at least one day of declines.
Alternative research over a longer period confirms the persistence of these trends: According to historical data going back to 1896, the Dow Jones Industrial Average has gained an average of 1.7% during this seven-day trading period, rising 77% of the time.
So, why does this happen?
Who knows? According to Stone, some popular explanations: year-end tax-related portfolio adjustments; optimism during the holiday season; and short-sellers being on vacation.
Frankly, none of those rationals are not worth betting on.
If there’s any explanation for the trend, it may just be that stocks just tend to go up on average.
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