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We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. The Santa Claus rally refers to gains in the stock market that often take place at the end of December. The pattern is one of a number of “calendar effects” that occur, or at least are believed to occur, over the course of the year.<\/p>\n<\/p>\n
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December tends to be among the strongest months of the year for U.S. stock performance. Since 1926, only returns in July and April have outpaced December’s average \u2014 about 1.9% and 1.7% versus 1.6%, respectively, according to data from Morningstar Direct. Professional investors often adjust their portfolios at the end of the year for tax purposes by selling stocks at a loss. That temporarily pushes down stock prices, but that trend is soon reversed as investors begin buying stocks again, pushing prices higher.<\/p>\n<\/p>\n
For buy-and-hold investors and those saving for retirement in 401(k) plans, the Santa Claus rally does little to help or hurt them over the long term. It is a news headline happening on the periphery but not a reason to become more bullish or bearish during Santa Claus rallies or the January Effect. While Santa Claus can be counted on to deliver the presents on Christmas, the stock market cannot be relied upon for gifts. Any positive gain in the stock market around Christmas commonly leads financial market observers to refer to the Santa Claus rally. But this compensation does not influence the information we publish, or the reviews that you see on this site.<\/p>\n<\/p>\n
The pattern has held true since 1950, with the broad market index increasing an average of 1.3%. Additionally, the market has gained during those days in 34 of the previous 45 years, or more than 75% of the time. By comparison, S&P 500 returns were a much smaller 0.24% during all other seven-day trading periods dating to 1950, Batnick said. For reference, the chart below compares the results of trading in any random six-day period in the past 26 years with the results of trading two kinds of six-day groupings. The first is the turn-of-month effect, four sessions at the end of a month and two sessions into the next month. For example, according to data compiled by LPL Research and FactSet, the Santa Claus rally period in 1999 saw the S&P 500 drop 4% and the Dotcom bubble burst in 2000.<\/p>\n<\/p>\n
In fact, some analysts suggest that strong retail spending is seen as an important economic indicator of economic growth and promotes bullish buying behavior as a result. High year-end sales figures have a tendency to drive retailer stock prices up in anticipation of good quarterly returns. Both of these things are seen as having a domino effect on the rest of the market, leading to broad-based price increases. Similarly in 2008, during the stock market crash caused by the financial crisis, stocks actually got a Santa Claus rally in the midst of a larger bear market rally. During the seven-day period, the S&P 500 gained 7.5%, although it would crash again in the first two months of 2009 before bottoming out on March 9. The trend, known as the “Santa Claus rally,” encompasses the last five trading days of the calendar year and the first two of the new year.<\/p>\n<\/p>\n
In some years, the stock market has also declined sharply during the days in question. For example, from 2014 to 2015 the S&P 500 experienced a decline of 3.01% and from 2015 to 2016, that index declined by 2.27%. While the Santa Claus Rally was originally defined as lasting just seven days, some analysts and commentators tend to use the term more broadly to refer to longer time periods or even the entire month of December. By definition, the Santa Claus rally refers to gains in the market that typically happen in the last five days in one year and the first two days of the next. The term is sometimes used to refer to any rally that takes place around the end of the year. In 2018, the S&P 500 finished the month with a 6.6% gain after December 24, which were the last four trading days of the month.<\/p>\n<\/p>\n
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However, short-term traders may take more action in the hopes of positioning themselves for a rally. They may buy stocks or stock funds ahead of the end of the year and look to sell them once a rally has taken place. Yale Hirsch followed stock market history and patterns and founded the Stock Trader\u2019s Almanac in 1968. The almanac introduced the public to statistically predictable market phenomena such as the \u201cPresidential Election Year Cycle\u201d, \u201cJanuary Barometer,\u201d and the \u201cSanta Claus Rally.”<\/p>\n<\/p>\n
The Santa Claus rally occurs when stocks rise over a seven-day trading period\u2014starting the last five trading days of a year and continuing into the first two trading days of January in the following year. A Santa Claus Rally is a seasonal stock market trend that often occurs near the end of the fiscal year. The stock market often yields positive returns during the last five business days of December and the first two business days of the new year, although this is by no means guaranteed. It was first observed by Yale Hirsch in the 1972 version of The Stock Trader\u2019s Almanac. Generally, the Santa Claus rally refers to the stock market’s history of rising over the last five trading days of the year and the first two market days of the new year.<\/p>\n<\/p>\n
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According to data compiled by Stock Trader\u2019s Almanac in the 70 years between 1950 and 2020, a Santa Claus rally has occurred 57 times and has, on average, seen the S&P 500 go up by 1.3%. Between 1926 and 1950, it existed as the Composite Stock Index, tracking 90 stocks. These seven days have historically shown higher stock prices 79.2% of the time, reflected in the S&P 500. The Stock Trader\u2019s Almanac compiled data during the 73 years from 1950 through 2022 and showed that a Santa Claus rally occurred 58 times (or roughly 80% of the time), with growth in the S&P 500 by 1.4%. A Santa Claus rally is the sustained increase in the stock market that occurs around the Christmas holiday on Dec. 25.<\/p>\n<\/p>\n
This definition is much less scientific and should not be assumed to occur with the same level of statistical confidence as the original one defined by Yale Hirsch. Mercedes Barba is a seasoned editorial leader and video producer, with an Emmy nomination to her credit. Presently, she is the senior investing editor at Bankrate, leading the team\u2019s coverage of all things investments and retirement. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. For example, in 2018, the S&P 500 fell through much of the fourth quarter as Treasury yields rose.<\/p>\n<\/p>\n
The S&P 500 was positive during those seven days in 15 of the 20 years \u2014 or 75% of the time, FactSet found. A Santa Claus rally is a market rally that causes stock prices to increase during the holiday season, typically a seven-day period beginning the day after Christmas and ending on the second trading day in the New Year. Bankrate.com is an independent, advertising-supported publisher and comparison service.<\/p>\n<\/p>\n
“Midterm elections, no matter what, have a tendency to be very bullish, and the Santa Claus rally continues through the next three, six, 12 months,” he said. Again, looking at the historical performance of the S&P 500 over the last two decades, we conclude that it is nearly a toss-up between a tangible rally and a normal trading week. The Santa Claus Rally makes for interesting news stories when the phenomenon occurs, but counting on it to usher in the New Year is by no means guaranteed.<\/p>\n<\/p>\n