The
Santa Claus
Rally
presents
Yes, there really is a Santa Claus Rally! It’s a phenomenon where the stock market makes bigger-than-usual gains at the end of December and the beginning of January. In fact, December has been the second-best month for the Dow Jones Industrial Average going back over 50 years.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Average returns by month, historical, Dow Jones Industrial Average. Data: Thomson Reuters
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
The Santa Claus Rally, as the term is commonly used, usually refers to the time between Christmas and New Year’s Day. However, historical research says that the most profitable range of days is the last five trading days of December and the first two trading days of January.
Keep in mind: the market doesn’t always rally during this time, so it should not be thought of as a “sure thing.”
The market rallies in December roughly 3 out of every 4 years.
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
'21
1.57%
-2.15%
5.64%
5.78%
0.41%
0.76%
-6.03%
5.08%
3.25%
1.26%
1.48%
5.99%
0.86%
-0.10%
-0.76%
-0.33%
-1.87%
-9.18%
2.31%
0.70%
1.76%
1.08%
2.86%
3.71%
1.57%
1.65%
December returns by year, S&P 500, 1991-2021, Data: AAII
What causes the Rally?
What causes the Rally?
What causes the Rally?
What causes the Rally?
What causes the Rally?
What causes the Rally?
It’s difficult to pinpoint an exact cause, but a few theories include:
Institutional investors (like big banks, hedge funds, mutual funds and pensions) often make big stock buys before the end of the year to “bulk up” their portfolios with stocks that performed well, which gives a boost to leading stocks.
Window dressing:
Individual investors, who tend to be more bullish as a group than institutional investors, will often have year-end bonuses to spend and some time off to spend it. This often results in more buying, which drives stock prices higher.
Year-End Bonuses:
To take advantage of tax code loopholes, some investors will sell stocks they’ve taken a loss on at the end of December and buy them back in January. This creates an artificial stock price bump in January, and investors anticipating this may drive up prices at the end of the year.
Tax Purposes:
How does investor psychology factor into it?
The market is rational, but you can’t say the same for people. Here are a few ways that investor sentiment could alter the market in late December.
There’s cheer in the air around the holidays! This can manifest itself in an optimistic outlook that leads to more buying and higher stock prices.
People believe in the Santa Claus Rally, so they expect the market to rise. People buy more stocks and, as a result, the market rises.
Holiday Cheer
Self-
Fulfilling Prophecy
How can you profit from the Rally?
Build a list of the best stocks to watch during the holidays or time off from work. Start with a stock list that outperforms the market (like the Leaders List from Leaderboard )
to save time.
Set price alerts
for stocks you’re watching so you can be notified when they’re in a buy range, even if you’re away from home.
Create custom watchlists of your stocks and set mobile alerts with the Leaderboard and MarketSmith apps. You can download and try them for free!
Wait to buy a stock until it breaks out of a base pattern on higher than average volume. Don’t jump in too early on a stock just because the market is rallying.
Ho-ho-hoping for bigger returns this year?
Leaderboard helps you take advantage of a potential Santa Claus Rally! Join today and you’ll get:
Don't just outperform the market, sleigh it with Leaderboard. Try 4 weeks for only $39!
Join Leaderboard
• Lists Full of Winning Stocks
• Complete Trading Plans
• Expert Market Analysis
• Free Product Coaching
®
®
®
0.9%
0.1%
1.2%
1.5%
0.2%
0.2%
0.0%
-0.1%
-0.4%
1.0%
1.1%
1.3%
The
Santa Claus
Rally
The
Santa Claus
Rally
The
Santa Claus
Rally
The
Santa Claus
Rally
The
Santa Claus
Rally
How can you profit from the Rally?
How can you profit from the Rally?
How can you profit from the Rally?
History shows that during bear markets, the Santa Claus Rally effect can be even stronger. During the last three sustained bear markets dating back to 1990, there have been 4 out of 5 holiday seasons with Santa Claus Rallies—that’s 80% of the time. In other words: If you’re not paying attention to the market during the holidays this year, you could be leaving money on the table.
Why should you pay extra attention this year?
How does investor psychology factor into it?
Why should you pay extra attention this year?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What is the Santa Claus Rally?
What causes the Rally?
How can you profit from the Rally?
The
Santa Claus
Rally