What is a Santa Claus rally? Will it happen in 2022?

During the recession, which lasted for 17 months from October 2007 to March 2009, there were two Christmas rallies – a 1.32% jump in the week beginning December 17, 2008, and a 6.81% increase in the week beginning December 29, 2008. “The lack of a ‘Santa Claus rally’ this month, with a ‘lump of coal selloff’ in its place, is a troubling sign about 2023 US equity returns,” strategists at DataTrek wrote. Much of that is owed to the historic actions of global central banks, which have raised interest rates in lockstep to rein in the highest inflation in decades after a period of extensive fiscal stimulus. The U.S. Federal Reserve has raised interest rates by a cumulative 4.25% this year, the most since 1980, while signaling that further hikes were likely in the year ahead. The U.S. stock and bond markets will be closed on Monday, December 26, in observance of Christmas Day.

Meanwhile, holiday bonuses and tax considerations from companies and individuals often play a huge role during the end of the year that leads to above average returns in markets. A ‘Santa Claus Rally’ is a term used to describe the phenomenon where the stock market jumps in value during the last week of December and into the first two trading days of the new year. There are a number of theories as to why this happens – from tax considerations to investors buying stocks with their holiday bonuses. There are numerous explanations for the causes of a Santa Claus rally, including tax considerations, a general feeling of optimism and seasonal happiness on Wall Street, and the investing of holiday bonuses.

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And that brings us to Prologis, a real estate investment trust (REIT) that specializes in this type of real estate. Prologis owns and operates more than 4,700 buildings with 1 billion square feet of space. And the scale of the investment will be even larger, given that Prologis agreed to acquire its biggest rival in the industrial space, Duke Realty, back in June. HD’s stock has really struggled this year and is now discounted by about 36% from its highs. One can look at this latest setback as a buying opportunity for one of the biggest success stories in U.S. retail history.

• After another crash in early 2009, a 23% surge followed shortly thereafter.
• According to our analysis cited above, the average positive gain over the last two decades is +1.85%, while the average loss was -3.28%.
• Although, several possible rationales are used to explain why the market jumps during these seven trading days.
• For reference, the chart below compares the results of trading in any random six-day period in the past 26 years with the results of trading two kinds of six-day groupings.
• Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice.

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. For example, from 2014 to 2015 the S&P 500 experienced a decline of 3.01% and from 2015 to 2016, that index declined by 2.27%. December tends to be among the strongest months of the year for U.S. stock performance. Since 1926, only returns in July and April have outpaced December’s average — about 1.9% and 1.7% versus 1.6%, respectively, according to data from Morningstar Direct.

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Importantly, the effect is not in place prior to Christmas as the weeks leading up to the holiday have no substantial deviation from other times of the year. However, it’s not a sure thing; your chance of an up day for markets during this period is still only a little better than six out of 10 based on history. That’s surprisingly good for the stock market, but certainly https://trading-market.org/ not enough create a sure thing. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Many individuals will see the most benefit from long-term investing in diversified mutual funds. An example of a big Santa Claus rally occurred in December 2008 going into January 2009.

While the Santa Claus Rally was originally defined as lasting just seven days, some analysts and commentators tend to use the term more broadly to refer to longer time periods or even the entire month of December. If history is a guide, stock investors may be poised to get a gift over the holidays. The second major question is whether the Santa Claus rally really even exists. Again, looking at the historical performance of the S&P 500 over the last two decades, we conclude that it is nearly a toss-up between a tangible rally and a normal trading week.

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Bureau of Labor Statistics issues its latest monthly consumer price index report. Bonds, typically a ballast when stocks are down, have also been in the doldrums; the Bloomberg https://forexbox.info/ U.S. Aggregate bond index, a barometer of U.S. bonds, is down 11% in 2022. Whatever the reason for the Santa Claus rally, investors can use a bit of good news.

Typically, the last five trading days of December and the first two of the new year have been good for traders. A study by LPL Research showed the S&P 500’s average return performance during the seven-day period is 77.9% more likely to yield positive returns than any other seven-day period. Last year’s return was right in line with the usual as the S&P 500 increased 1.44% during those seven trading days.

The history of the Santa Claus rally

The use of derivatives (futures, options and swap agreements) may create additional risks that would not be present in the underlying securities themselves, thus raising the potential for greater investment loss. Examples include a reduction in returns, increased volatility, exposure to the effects of leverage, https://bigbostrade.com/ and the risk that the other party in the transaction will not fulfill its contractual obligations. There have been five holiday periods over the past three recessions, and the Santa Claus Rally occurred during four of those five periods (80% of the time), beating the overall average of 66.66%.

JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. According to data compiled by Stock Trader’s Almanac in the 70 years between 1950 and 2020, a Santa Claus rally has occurred 57 times and has, on average, seen the S&P 500 go up by 1.3%. Between 1926 and 1950, it existed as the Composite Stock Index, tracking 90 stocks.

In the meantime, there are shorter-term moves in the markets this month that don’t have anything to do with Santa Claus, or even a rally. Testimonials were provided by current clients of Facet Wealth, Inc. (“Facet”). Clients have not been paid for their testimonial and there are no material conflicts of interest that would affect the given testimonials. These testimonials may not be representative of the experiences of other clients, and do not provide a guarantee of future performance success or similar services. During that particular seven-day trading period, the S&P 500 was up an average 1.3% a year dating to 1950 and was positive in 79% of those years, according to an analysis by Michael Batnick, managing partner at Ritholtz Wealth Management. Just because the Santa Claus rally does usually happen, and it often predicts the market the following year, that doesn’t mean it will continue to do so.