Do You Believe in Santa Claus? Wall Street Bulls Usually Do!
Most of you have probably never heard of this Wall Street trend called the "Santa Claus Rally." It kind of rings a bell-doesn't it!
The so-called Santa Claus Rally was coined by Stock Trader's Almanac in the 19070s. It encompasses the last five trading days of the year and the first two trading days of the new year.
This year, that Santa Claus Rally window is set to start on Monday, Dec. 27-Dec. 31 and it will end on Tuesday, Jan. 4th.
Since 1950, the Santa Claus Rally period has produced a positive return for the S&P 500 78.9% of the time, with an average return of 1.33%. Not a bad return for only seven days.
The question most people usually ask is, "why are these seven days so strong?" It could be a few things. Whether optimism over a coming new year, robust holiday spending, financial institutions setting up their books or just a touch of the holiday spirit. The bottom line is that bulls (bull market) tend to believe in Santa Claus.
And if history is any indication, the absence of a Santa Claus Rally has also given us hints that possibly lower near-returns are insight. Going back to the mid-1990s, there has been only six times Saint Nick failed to show gains in December. January was lower five of those six times. Interesting!
Are there any warning signs and the rally actually miss the mark despite a strong year so far in 2021? Maybe/Maybe not! Investors should have considerable concerns to mull over heading into the new year.
December started out quite volatile with renewed concerns over the Omicron variant, inflation, and the Fed's decision to cut back on its monthly bond-purchasing plan (in which kept the stock markets stimulated the past two years).
I wonder what would the stock markets look like if the U.S. was not battling the Omicron variant. As of Friday close, the S&P 500 is up 26% so far this year, after rising 16% in 2020. We have one more week and two days to go to see if the Santa Claus Rally will achieve its goal.
Given all the short-term risks of fed tightening, Chinese weakness, inflation uncertainty and COVID, Wall Street isn't complaining.