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  1. 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.
  2. Then she added another steal, scored with Bennett guarding her and drew the foul.
  3. Some studies suggest that there is evidence of a Santa Rally effect, with stock prices exhibiting positive returns during the month of December.
  4. Since 1950, the third year of a presidential cycle has averaged a return of 16.8% versus 6.0% for year two, LPL Financial said.

The Morningstar US Market Index rose 9.40%, one of its best November gains in history. The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice.

Strategies may include a stop-loss level and a plan for what to do if the trade is neither profitable nor stopped out by Christmas. Parks, who entered Tuesday averaging 25 points per game, has reached double figures in every matchup this season, including a school-record 51 points against Midwest City. On the surface, the current stock market seems to have little in common with 2008, when stocks were in free fall.

Also, because it is unclear exactly why the Santa Claus Rally occurs, it is impossible to predict whether those influences will recur in any given year. There’s also the argument that holiday shopping can bolster businesses’ bottom lines and help boost stock prices. Also, many employees receive year-end bonuses that can be invested in the market. Some of the theories that aim to explain both the Santa Claus rally and the January Effect have received criticism. An example of a big Santa Claus rally occurred in December 2008 going into January 2009.

All three seemingly exhibit the phenomenon despite representing different parts of the market and having different makeups over the years. For a year to meet the “rally” definition, returns merely need to be positive. Thus, one can say the market has enjoyed a Santa Claus rally whether the return was 7.2% over that period, as it was in 1974, or 0.0003%, as it was in 2006.

They believe that investors tend to focus more on the market during this period, leading to increased trading activity and potentially influencing stock prices. The term “Santa Claus Rally” has its roots in the early 20th century, although its exact origin and the reasoning behind the name remain somewhat ambiguous. One theory suggests that the term emerged from the tradition of a year-end rally coinciding with the arrival of ‘Santa’ during the holiday season. Another theory attributes the term to the phenomenon of commodity trading strategy institutional investors adjusting their portfolios before the year-end, leading to increased buying activity and upward price movements (therefore playing ‘Santa’ to the markets). Several theories try to explain the Santa Claus rally, including investor optimism fueled by the holiday spirit, increased holiday shopping, and the investing of holiday bonuses. Another theory is that this is the time of year when institutional investors go on vacation, leaving the market to retail investors, who tend to be more bullish.

What is the Santa Claus rally in the stock market?

The week before Christmas typically has normal to significant volume, compared with the week after Christmas, which is usually marked by generally sideways stock-price movement with small ranges. The week before Christmas also captures much of the end-of-the-year adjustments from institutional players seeking to close their books before the Christmas holiday. The week after Christmas usually comes with much lower volume, suggesting that institutional players have withdrawn from the market for the rest of the year. Some observers posit that the Christmas holiday means fewer large institutional investors are actively trading.

Santa Claus rallies are a ‘meaningful’ trend, says financial advisor: What one could mean for investors this year

The Santa Claus rally is just one of many seasonal indicators Yale Hirsch and other technical analysts claim to have discovered. The study also examined returns in 15 other developed countries, so the total sample included eight countries where a majority of residents identify as Christian and eight where they don’t. The flaw with this theory is that there is no single time of year when most corporations pay bonuses; it varies by company. One theory is that the short selling they would normally do doesn’t happen.

When investors consider data that spans 20 years of performance of the Standard & Poor’s 500 (S&P 500) in the week leading up to Dec. 25 from 2002 to 2022, there is minimal evidence of any discernible Santa Claus rally. Based on the S&P 500, there were 13 weeks with a positive return, five with a negative return, and two with no change. It’s hard to mention the Santa Claus rally without mentioning the January Effect following soon after.

The Santa Claus Rally

Many expected the election of a candidate with no political track record to send markets down — if only due to uncertainty. Yet, as the market sank thereafter and technology dropped to a 2% discount at the end of September, we moved back to a market-weight recommendation. Following the 13.29% surge in the Morningstar US Technology Index in November, the valuation has risen back to an 8% premium. At this point, we think it’s a good time to move back to an underweighting and take profits in those stocks that have become overvalued and overextended. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers.

Just don’t go into it thinking it’s a surefire way to make a large, quick profit. If it’s that simple, analysts should do us all a favor and promulgate more calendar effects beyond the presidential election year cycle, January barometer and best six consecutive months. Market timing based solely on the Santa Claus Rally is generally not recommended. Yes, geopolitical events can impact market sentiment and potentially influence the occurrence of the Santa Claus Rally.

Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. However, over the last 10 years from 2010 to 2020, the stock market only saw an average Santa Claus Rally of 0.38%. In some years, the stock market has also declined sharply during the days in question.

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