This year's Santa Claus Rally Period starts on Tuesday.
To clear up any confusion, the official period for the annual Santa Claus Rally includes the last 5 trading days of the year and the first 2 of the following year, for a total of 7 days.
Since 1950, the S&P500 has averaged a 1.3% gain during this period. And if you want to take it back further, since 1928 we've seen an average gain of 1.6%. This compares to just a 0.2% gain for any other random 7 day period throughout the rest of the year.
Every year is slightly different, depending on which days Christmas and New Years fall on the Calendar.
The last 5 days of 2024 begin this Tuesday December 24th. And the first 2 days of next year include January 2nd and 3rd. So the official 7 day period this year goes from December 24th - January 3rd.
And while traditionally, this is a much more bullish time of the year, compared to other periods, the bigger concern is if Santa doesn't show up.
The late great Yale Hirsch, who first discovered this phenomenon in 1972 was quite the lyricist, as I've come to learn. His son Jeff Hirsch and I have become good friends over the years and he's filled me in on a lot of the history.
As Yale coined it,
"IF SANTA SHOULD FAIL TO CALL, BEARS MAY COME TO BROAD AND WALL"
In other words, if the S&P500 doesn't rally during this bullish seasonal periods, then that's where the problems could start for the market.
If you're not familiar with lower Manhattan, the New York Stock Exchange is located on the corner of Wall Street and Broad Street, hence the "Bears may come to Broad and Wall".
According to the the Stock Trader's Almanac, "Santa's failure to show tends to precede bear markets, or times stock could be purchased later in the year and much lower prices"
Here are some of the stats the our very own Grant Hawkridge put together this week:
The performance of the stock market over the next few quarters tends to suffer if Santa Claus doesn't show up.
"For instance, since 1928 the S&P 500 has averaged a 0.7% loss in the subsequent three months following a negative SCR (Santa Claus Rally) vs. an average 2.6% gain following a positive SCR", according to Ari Wald of Oppenheimer.
Here's a chart he sent over this morning showing the hit rate during the Santa Claus Rally period compared to other periods throughout the year (on the left). And then the returns following a positive SCR vs the returns after a negative SCR period (on the right):
Now, let's put things in perspective.
Price trends, momentum and sector rotation carry a much much higher weighting in our analysis than this seasonal data, or any other seasonal or sentiment studies, for example
But seasonality has been incredibly helpful throughout my career, and especially so this cycle, for those of you who've been paying attention.
I still think the sector rotation aspect of this market needs to be front and center. Without sector rotation, this bull market would not be where it is today.
And so without further rotation, I would expect the bull market dynamics to be very different in 2025.
The resurgence of Consumer Discretionary this Fall cannot be ignored. Technology now starting to make a comeback is another big one.
This rotation into Large-cap High Beta is necessary, in my opinion, if this bull market is going to remain strong into 2025. Keep in mind that Tech stocks represent over half the S&P500 High Beta Index.
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