Does the Santa Clause rally exist?

The so-called Santa Claus rally suggests that the last few trading days of the year and the first few in January tend to deliver a short, sharp rally in equity markets. According to the Stock Trader’s Almanac 2022, this rally produced an average gin of 1.3% since 1969. The period of this rally lasts from the last 5 trading days of December and first two of January.

So, if this rally happens again this year, than it begins on Friday, December 23, and last through January 4. Last year, the S&P rose 1.4% over those seven trading days. Also, the Santa’s rally happened every year for the last 6 years.

But be aware: There is another very interestingly phenomenon about the Santa Claus rally. For years when there is no end-of-year rally, a bear market tends to follow!

Using data back to 1969, the most extreme case of this occurred in 1999/2000. That’s when the market fell 4% in the 7 days surrounding the New Year’s holiday. The market then turned down again a few months later in March, and the ensuing bear market lasted until October 2002. The S&P 500 dropped a stunning 49%.

Sven Franssen