Santa Claus Rally Definition

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Santa Claus Rally Definition

what is santa claus rally

The Santa Claus rally has been pretty statistically significant over the last 70 plus years and there’s no way to know if it happens again but let’s hope Santa can make it down the chimney once again to cap off a down year in 2022. Easily research, trade and manage your investments online all conveniently on and on the Chase Mobile app®. Morgan online investing is the easy, smart and low-cost way to invest online.

A bear market is generally recognized when the S&P 500 falls more than 20% from its previous bull market peak. This year, the S&P 500 officially fell into a bear market in the week beginning May 16. Interestingly, statistically, during bear markets and economic downturns, the rally can be even stronger. The phenomenon, given its label by analyst and creator of the Stock Trader’s Almanac Yale Hirsch, generally takes place during the last week of December into the first few days of January. Some years, the rally has taken place over an extended period, beginning Dec. 14 and lasting over two weeks. As 2022’s final week of trading begins, traders and investors are likely excited about a potential Santa Claus Rally.

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In this case, it’s possible that the effect has something to do with tax-loss harvesting. That’s when investors sell losing investments for tax reasons, often around the end of the year, and then buy back into the markets to improve their short-term tax position. Part of the reason the Santa Claus rally may work is because it overlaps with the January effect. This is the tendency of the market — especially for smaller, value stocks that have been beaten down over the prior year — to rally in the early days of January.

what is santa claus rally

This could be because lighter trading volumes during these periods make it easier for bullish investors to move the market. The first reason is the hardest to quantify and verify but a general wave of happiness and optimism are more present during this time. Additionally, institutional investors go on vacation during this time, allowing for retail traders, who are generally more bullish, to more heavily sway the market.

Planning and Investments

When investors return from a long weekend Tuesday, hopes will be high for a Santa Claus Rally – a seasonal rise in the stock market that occurs at the end of December. But with selling pressures remaining in place over fears about a looming recession, the favorable season pattern may take this year off. The Santa Claus rally is used to describe the tendency for the stock market to rise in the last five trading days of the current calendar year and the first two trading days of the new year. The Santa Claus rally is an effect in which stock prices rise more than usual over the last five trading days of December and first two days of January. Others insist that the Santa Claus Rally is related to increased holiday spending. 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.

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. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Earnings Calendar

According to the 2019 Stock Trader’s Almanac, the market has risen an average of 1.3% each year during that period. A larger-than-expected increase in interest rates or signs that inflation was hotter than anticipated could fuel stock-market jitters toward year-end. “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.

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Santa Claus Rally Definition

This implies that the chances of the market rising around the holidays are higher than average, for comparison the chance of the S&P 500 rising on any given day is 53%. J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A.

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  • This coming holiday-shortened week will round out a brutal year for Wall Street as 2022 comes to an end.
  • January gains are also muted in a non-Santa year, with the index falling an average of 0.3% compared to a 1.3% gain after a Santa year, the data showed.
  • The Santa Claus rally is used to describe the tendency for the stock market to rise in the last five trading days of the current calendar year and the first two trading days of the new year.

If investors anticipate it, they are likely to behave differently, and market participants may adjust according to the expectation of a Santa Claus rally. Like other calendar effects, including the January effect and phrases such as, “Sell in May and go away,” there is strong evidence that the Santa Claus rally is real and can predict the market’s outcome. Traders should be wary of market talk surrounding the notion of a Santa Claus rally, and stay fixed on the current market environment.

Investors in real estate investment trusts are focused on dividend yield, and with bond yields as low as they have been in recent years, many investors have begun to view REITs as a substitute for bonds. However, the company is not worried about the outlook for the coming quarters. The company raised its dividend by 20% earlier this year, even as Wall Street panicked over stocks. This tells me that management believes their current troubles are just a roadblock. But it also presents an opportunity for leading chipmakers to increase production and take advantage of inflated prices. The three-month recession that took place between July 1990 and October of that year caused the S&P 500 to fall 20.14%.

In this examination of the Santa Claus rally, we’ll discuss the origins of the rally, why it happens, and the history behind it. For the purposes of defining when the Santa Claus rally happens—to the extent it does—our research leads us to focus on the week before Christmas to document the potential Santa Claus rally effect.

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What a Santa Claus Rally Could Mean for Your Investments This Year – GOBankingRates

What a Santa Claus Rally Could Mean for Your Investments This Year.

Posted: Mon, 12 Dec 2022 08:00:00 GMT [source]

The media tends to jump at the chance to turn any seasonal market uptick into a compelling story, and the Santa Claus rally is no exception. But, while December is generally one of the best months for US stocks, the reasons aren’t exactly clear. Stocks usually rise over the last five days at the end of the year and the first two days of the following year.

The Santa Claus Rally of 2022

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Financial columnists and traders like to opine on the likelihood of a Santa Claus rally. Some cite economic and technical analysis, and others offer pure conjecture. Swiss franc took a hit this morning following the release of CPI data for June from Switzerland. The company offers a competitive dividend yield of 4.8%, but unlike bond coupons – which never change – Realty Income raises its dividend every year.

Hirsch’s theory came from his research of the Standard and Poor’s 500 (S&P 500) performance between 1950 and 1971 over the seven-day period stated above. Moreover, the market has been positive in 34 of the last 45 years, just over 75%. However, a Santa Claus rally isn’t always an accurate predictor of gains the next year.