Santa Claus Rally

Ho, Ho, Ho! The famous call from the big guy in red will grow louder as December progresses. Santa Claus is a perennial symbol during the holidays. Santa Claus is not just a giver of material presents; he often showers investors with gifts of delight.

The final month of the year is often accompanied with feelings of joy delivering positive returns to investors. Since 1970, a Santa Claus visited the stock market 75% of the time¹. Due to the high occurrence of positive returns which are occasionally accompanied by high single digit returns and even a double-digit return, the holidays have adopted the term “Santa Claus Rally.”

Research has been conducted to explain December’s return skewness with minimal results. Theories range from seasonal psychological excitement to year-end trading strategies to excess cash deployment. Either way, Santa Claus Rallies are an undeniable market anomaly. Admittedly, Santa Claus doesn’t bestow his blessings on the market every year.

The best Santa Claus Rally occurred in 1991 with a return on 11.4%¹, which was complemented by the USSR President Gorbachev’s resignation, the dissolution of the USSR, end of the decades long Cold War, and “peace dividend” declarations. The worst December of -9.0%¹ happened in 2018 due a few unknowns; US-China trade war concerns, BREXIT’s back-and-forth negotiations, prognostications of economic weakness, and Federal Reserve Chairman Powell suggesting continued rate hikes for 2019².

December 2023 has not yet been written. Will Santa Claus visit the market this year? It’s possible Santa came early with very strong November performance. November resulted from Federal Reserve Chairman Powell mentioning the approaching rate hike cycle conclusion followed by economic data supporting Powell’s words were sincere and not another head fake.

The data is clear. December tends to be a good month for patient investors, though there are no guarantees. Reasons for favorable Decembers still leaves inquiring minds in a lurch. Maybe Santa’s lesson is a positive outlook is more productive. Ho, Ho, Ho!

¹Data from Morningstar Direct
²https://www.pbs.org/newshour/economy/making-sense/6-factors-that-fueled-the-stock-market-dive-in-2018

Past performance does not guarantee future results. Forward looking statements may be subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied.

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