Santa Claus Rally Begins Now

According to Ari Wald at Oppenheimer, "Since 1928, the S&P 500 has averaged a 1.7% gain and traded higher 78% (73 out of 93 years) of the time through this seven-day period vs. an average 0.2% gain and 57% hit-rate during any seven-day period"

Here's a different look going back to 1950 via Ryan Detrick at LPL Financial. This one is powerful because it completely shuts down the fact that you can take any 7-day period throughout the year and see similar results. This data puts that to bed. This is definitely a powerful time of the year.

But the things is, “If Santa should fail to call, bears may come to Broad & Wall.”

In other words, when stocks do not do well during this period, it's usually a sign of bad things to come.

According to Ari, "Performance in the next 1-2 quarters has tended to be below average when the S&P 500 closes lower during the SCR. For instance, the S&P 500 has averaged a 1.2% loss in the subsequent three months following a negative SCR vs. an average 2.7% gain following a positive SCR"

The bottom line is this. Stocks tend to do well in the second half of December and into the beginning of the year. When that doesn't happen, then that's the signal.

Here are the stats from Detrick,

Going back to the mid-1990s, there have been only six times Santa failed to show in December. January was lower five of those six times, and the full year had a solid gain only once (in 2016, but a mini-bear market early in the year). “Considering the bear markets of 2000 and 2008 both took place after one of the rare instances that Santa failed to show makes believers out of us. Should this seasonally strong period miss the mark, it could be a warning sign,”

I hope this clears up any questions about the Santa Claus Rally. You can check out the annual Stock Trader's Almanac for more on all things seasonality.

Or check out my podcast episode with Jeff Hirsch, the author of the almanac, from last month. It was a fun one!

JC