2024 Santa Claus Rally Delivers Lump of Coal
The Santa Claus Rally was first coined by noted stock market analyst Yale Hirsch back in 1972. It was Hirsch who first noticed the trend that the stock market tends to rise in the last five trading days in December through the first two trading days in January. Since then, this seven-day trading session continues to spur a sense of hope and Holiday tradition among the Wall Street investor community.
Over the past several decades, the Santa Claus Rally has provided some interesting results. Since 1969, it has produced a gain 75% of the time – 42 gains vs. 14 losses – in the benchmark S&P 500 stock index. Within these 56 trading sessions, the S&P 500 has produced an average gain of 1.3%. The biggest loss was in 1999 when the Santa Claus Rally delivered a punishing loss of 4%. The biggest gain was in 2008 when Santa delivered a massive 7.4% seven-day gain.
But is the Santa Claus Rally really an indicator of things to come?
As Hirsch once said, “If Santa Claus should fail to call, bears may come to Broad and Wall.” According to Hirsch, a disappointing Santa Claus Rally projects a broader decline in stock prices – i.e. a bear market – that might befall the stock market at its epicenter, the New York Stock Exchange, which is located at the corners of Broad Street and Wall Street.
But putting your faith in such a charismatic prognostication is somewhat akin to believing the groundhog will accurately reflect the arrival of spring. In 2023, the Santa Claus Rally delivered a decline in the S&P 500 of 41.94 points, or -0.9%. However, in 2024, the S&P 500 gained 23.3% while the tech-heavy NASDAQ surged higher by 28.6%. Over the past 20 years, a negative Santa Claus Rally has translated to a loss in the S&P 500 in the following year just 40% of the time.
This year, the Santa Claus Rally delivered yet another lump of coal as the S&P 500 fell 31.6 points (-0.5%). Investors are hoping the stock market can once again shrug off a bad Santa Claus Rally and continue on its upward path.
Admittedly, one shouldn’t read too much into a seven-day trading span, which is just a tiny fraction of the roughly 253 trading days over the course of the year. Trading activity tends to be rather light during the last six weeks of the year. Many traders take time off during this stretch which includes Thanksgiving, Hanukkah, Christmas and New Year’s Day. Wall Street traders also tend to lock-in their annual profits by the start of December, not wanting to risk their hard-fought gains – and performance bonus – in the final weeks of the year.
There’s no official rationale behind the historical stock market gains of the Santa Claus Rally. Perhaps it’s the general optimism that surrounds the holiday season. Others contend it’s a short-term conviction on the retail holiday shopping season, which is the 61 calendar days in November and December. As consumer spending accounts for more than two-thirds of all U.S. economic growth, one could argue investors are hopeful the retail holiday shopping season could provide a spark to the economy and future gains in the stock market.
Whatever the reason, the Santa Claus Rally often provides a welcome respite from the usual chaos of the stock market. And to you, the readers, I wish you all a very joyous – and prosperous – New Year.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
