Maybe invoking a smile, it’s time to see if investors will get a “Santa Claus rally” this year. A Santa Claus rally is a sustained increase in the stock market that often occurs around Christmas. Yale Hirsch, the founder of the Stock Trader’s Almanac, coined the term in 1972. He defined the timeframe as the final five trading days of the year and the first two trading days of the following year.
The Santa Claus rally has occurred 58 times (80 percent) between 1950 and 2022, with an average gain of 1.4 percent in the S&P 500. Theories for the rally include seasonal spirit and people investing year-end bonuses. Another explanation could be institutional investors hurrying to reposition portfolios, buy stocks, and invest excess cash before reporting their holdings as of December 31.
While we don’t believe our investment decisions should be based on seasonal factors, the Santa Claus rally is fun to revisit at this time of year. Santa Claus aside, we hope you and your family have a memorable, safe Christmas and start to 2025!