A Santa Claus rally, which would begin on Monday, is a very specific event: the tendency for the market to rise in the last five trading days of the year and the first two of the new year, good for an average gain of 1.3% in the S&P since 1950, according to the Stock Trader’s Almanac.
A Santa Claus rally, which would begin on Monday, is a very specific event: the tendency for the market to rise in the last five trading days of the year and the first two of the new year, good for an average gain of 1.3% in the S&P since 1950, according to the Stock Trader’s Almanac.
Ari Wald at Oppenheimer has studied this event over an even longer period: Since 1928, the S&P 500 has averaged a 1.7% gain and traded higher 78% (70 out of 90 years) of the time through this seven-day period.
That is notably higher than the average gain during any seven-day period during that time, which was up 0.2% and trading higher 56% of the time.
Why this works is not entirely clear. The usual explanation is that the first half of December is dominated by tax-loss selling, and once that is completed, buyers usually step in and buy beaten-up stocks, and since volumes are typically light in the second half of December a modest increase in buying interest will produce a rally.
