An Introduction
With the Christmas holidays just around the corner, we’re already hearing chatter about the potential for a Santa Claus rally, a term that refers to a higher-than-usual rise in stock prices around Christmas. Typically, it includes the final 5 trading days of a calendar year plus the first 2 days after New Year’s Day. Per data from Dow Jones, since 1950, the broad-based S&P 500 has had gains 76% of the time, with an average increase of 1.3% over the seven days. which is far more than the average performance over a 7-day period.
What Causes the Santa Claus Rally?
While there is no generally accepted explanation for the phenomenon the rally is usually attributed to the following:
- Increased investor purchases in anticipation of the January effect,
- Lighter volume due to holiday vacations makes it easier to move the market higher,
- A slow down in tax-loss harvesting that depresses prices leading up to the end of December, and
- Short sellers and pessimistic investors tend to take vacations around the holidays.
Santa Claus Rally Follow Up
The above being the case it is going to be interesting to see how the markets react this year. MunAiMarkets will keep a close eye on developments at the end of December and report the affect the phenomenon had on its 17 portfolios of 89 stocks in an update on January 4th, 2025. Stay tuned!
