This Year, Stocks May Have A "Santa Claus Rally," But You Won't Get Gifts Until After Christmas
This Year, Stocks May Have A "Santa Claus Rally," But You Won't Get Gifts Until After Christmas

This Year, Stocks May Have A “Santa Claus Rally,” But You Won’t Get Gifts Until After Christmas

The financial advisors predicting a “Santa Claus surge” for U.S. stocks are getting ahead of themselves. This is because the only year-end seasonal strength deserving of being labelled a Santa Claus rally doesn’t start until after Christmas has already passed. The period beginning on Thanksgiving and ending on Christmas does not display any statistically significant potential for a rally.

To be clear, none of the advisors predicting a Santa Claus rally after Thanksgiving has bothered to specify when the rally will start and when it will expire. Therefore, challenging it is difficult. I did this by calculating the increase that the Dow Jones Industrial Average had from Thanksgiving until it reached its most excellent close in December using DJIA, +0.45%. Although complete clairvoyance is required to realize this gain, the fact remains that it marks the theoretical maximum for such a rally.

When calculated in this manner, the average gain of the Dow Jones Industrial Average from its inception in 1896 is 3.35%. However, even though this is roughly comparable to more than 1,100 Dow points, it is not very impressive. When the potential for rallies in other months is calculated similarly to the time after Thanksgiving, many of those additional months’ possibilities are higher.

The chart that follows provides further explanation. To construct it, I first determined the average rally that occurred from each month’s fourth Thursday (the day corresponding to Thanksgiving) to the high point of the following month. As can be seen, seven other months have a greater chance for a rally than the period that starts after Thanksgiving.

The possibility for a rally after Thanksgiving is less than the 3.75% averaged throughout the other 11 months of the year (as seen in the bar for November). In other words, the several weeks after Thanksgiving tends to be a period for the stock market that is significantly weaker than typical.

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Joy During The Holidays For Investors

There is yet a chance of success. After Christmas and continuing for several days, a period displays abnormally high strength. This actual Santa Claus rally phase, which begins with the first trading session after Christmas and continues through the second trading session of the New Year, is said to last, according to the Stock Traders Almanac, until the third trading session of the year.

Since its inception in 1896, the Dow has delivered an annualized gain of 1.5%, corresponding to 77% of the years since the index’s inception. The Dow Jones Industrial Average has finished higher 56% of the time over all other periods of the same duration that have occurred over the past 126 years, but its average gain has only been 0.2%. These differences have a substantial bearing on the statistics.

It is also reassuring to note that this tendency is more robust in years such as this one, in which the stock market fell year-to-date until Christmas, as was the case this year. The Dow Jones Industrial Average increased by 2.2% between Christmas and the second trading day of January, on average, overall, such years beginning in 1896. Compared to the average gain of 1.2% seen in years in which the stock market delivered year-to-date growth until Christmas, this figure represents a significantly smaller increase.

So, let’s not take Santa’s good name in vain. He should not be held responsible for the stock market’s success in the lead-up to Christmas because he already has enough on his plate. According to previous events, a Santa Claus rally probably won’t occur until closer to Christmas, just like the big man himself.

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About Sam Houston 1811 Articles
Hello, I'm Sam Houston, and I'm proud to be a part of the team as a content writer. My journey into journalism has been quite an exciting ride, and it all began with a background in content creation. My roots as a content writer have equipped me with the essential skills needed to craft engaging narratives and convey information effectively. This background proved invaluable when I decided to make the transition into journalism. The transition allowed me to channel my storytelling abilities into producing news articles that not only inform but also captivate our readers.

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