The Santa Claus rally
Endowus Insights

Leap into prosperity this CNY 💰     Get an $88 head start to growing your wealth.

Leap into prosperity this CNY 💰Get a $88 head start to growing your wealth.

The Santa Claus rally

Jul 2021
Dec 2017
"The facts suggest that successful market timing is extraordinarily difficult to achieve."

Beneath their dark-suited number-crunching demeanour, the Wall Street honchos secretly believe in Santa Claus. They believe stocks rally in the trading days between Christmas and New Years, and the first two trading days after New Years. But then again, "the Santa Claus rally" is just one of the many silly rhymes Wall Street has coined - my favourites include "Sell in May and go away" and "The trend is your friend".

Here are some facts:

  • According to the 2018 Stock Trader's Almanac, from 1969 to 2016, the "Santa Claus Rally" yielded positive returns in the stock market in 36 of the past 48 holiday seasons, with an average return of 1.3%.
  • Since 1896, the Dow Jones Industrial Average has risen 76% of the time during that period.
  • From 1950 to 2016, the S&P 500 saw 50 December advances and 17 declines, with an average return of 1.54%.

Wall Street has come up with all sorts of reasons for this, such as tax-loss selling (selling securities which have incurred losses during the year in order to reduce capital gains taxes) and window-dressing (buying best performing securities to pretend one has been holding winning stocks all along). Other theories are more of a stretch - some like to believe the bears are on vacation and that it's holiday season induced optimism.

We would love for market anomalies to be so obvious, but the fact of the matter is, when datasets are expanded, these 'anomalies' fade into normalcies with no statistical significance. In a recent statistical study on 30 years of market returns data, it was strongly concluded that December looks no different from any other month in the year. There is no evidence that any month is statistically better - or worse - than other months.

What does the Santa Claus rally mean for your portfolio? Nothing. Considering the number of random variables in the universe, some of these supposed market anomalies will exhibit a correlation with returns by chance alone. Instead of betting your fortune on Santa spreading his goodwill around the markets, stick to your investment plan, invest in proven strategies that have stood the test of time, and enjoy your eggnog.

Some proven strategies we have written on:

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