Today officially marks the beginning of the Santa Claus Rally.
As we already discussed earlier this month, the SCR period runs during the final 5 trading days of the year and the first 2 of the following year.
So due to the holiday schedule, the 2022 SCR goes from today December 23rd through Wednesday January 4th.
The average performance during these 7 days is 1.33% and is positive 79.2% of the time. This is a big difference from all the other 7 day periods throughout the year, that only average 0.24% returns. They’re also positive less than 60% of the time.
So we’ve found that there’s real alpha during this period.
But still, that’s not even the most valuable part of the SCR. I mean, we already know that this is seasonally the best time. Historically after mid-term elections, stocks do well. In fact, the first quarter of the pre-election year has only been down once since 1950. That’s a positive return over 94% of the time.
So for this particular period, we’re more interested if Santa doesn’t show up.
As they saying goes, “If Santa should fail to call, the Bears will come to Broad & Wall”.
For those of you unfamiliar with lower Manhattan, the corner of Wall St. and Broad St. is where you’ll find the New York Stock Exchange.
So if Santa doesn’t show, that historically precedes bear markets or continued downtrends for stocks.
Note that in 2000 and 2008, for example, Santa didn’t show.
When Santa comes and the SCR period is positive, the S&P500 since 1950 has averaged 10.5% returns per year, and it’s been higher 71.8% of the time. When Santa doesn’t show, those numbers drop to just 5% returns.
So welcome to the Santa Claus Rally period. It begins today.
This year marks the 50th anniversary of when Yale Hirsch originally discovered and named it the Santa Claus Rally in 1972. He published his findings in the 1973 Almanac. And it’s still very misunderstood to this day.
So big shoutout to Yale and the entire Hirsch family.
Make sure you pick up your copy of the annual Stock Trader’s Almanac. It’s a must read every year.