Let me explain… the Santa Claus Rally was first defined by Yale Hirsch in 1972 in the Stock Trader’s Almanac as the last five trading days of the year and the first two trading days of the New Year.
This year, that means the period that began Monday, December 27, 2021, and ends Tuesday, January 4, 2022.
Typically, this short, often sweet rally is usually good for about 1.3% on the S&P 500.
However, a quick word of advice – or caution?
I’m not recommending you run out and buy stocks purely based on a seasonal pattern.
The real significance of the Santa Claus Rally is as an indicator of things to come – or not to come.
You see, years when there was no Santa Claus Rally often preceded bear markets or at least times when stocks registered lower prices later in the year…
As Yale’s famous line states, “If Santa Claus Should Fail To Call, Bears May Come to Broad and Wall.”
For example, the year 2000 saw stocks down -4% during the last 5 days of 1999 and the first 2 trading days of 2000 – the year ended -10.1%
Then 2008 (who can forget 2008) saw stocks down -2.5% during the Santa Claus Rally week and the year ended down -38.5%.
There have been exceptions to the general rule as well, most recently both 2005 and 2016 began the year on down notes, -1.8% and -2.3% respectively…. however, both years ended with positive returns.
Here’s what you want to know:
Stocks tend to do well in the second half of December and into the beginning of the year.
It’s when what usually happens doesn’t happen, that investors should pay extra attention.
So though Santa’s job may be done for the year, the Santa Claus Rally is an important harbinger of things to come…
We’ll keep watching closely and keep you posted.
Until next week, invest wisely, friends.
And Happy New Year!
P.S. Rowe Wealth can help you tackle 2022 without a single worry about which way the market is heading – just give us a call. You can schedule a free 1-hour consultation to review your portfolio and determine your risk score here.
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