Is the Santa Clause Rally Real?

Is the Santa Claus Rally Real?

When traders talk about a “Santa Claus rally”, they are normally referring to an increase in the stock market that occurs in the last week of December and lasts through the first two trading days in January. But like many market axioms, we have to wonder to ourselves whether it is true or not. And even if it is true, how much of a “rally” are we really talking about?

We realized that we are able to easily analyze the Santa Claus rally. Using our Seasonality Module, we are able to determine the average gains or losses for any index or security over a certain period. For example, we could look at monthly seasonality in order to determine which stocks are most likely to post gains in July. Or we could see if the broad market had a seasonal tendency, like determining if the Santa Claus rally truly exists.

Weekly Seasonality Indicator Plotted on the Chart of the S&P 500

This chart shows the S&P 500 Index, focusing on the last week of December 2018 and the first week of January 2019. We can easily see that we did in fact get a rally in the Santa Claus “zone” in that timeframe.

Below the chart we have plotted the Weekly Seasonality indicator. It is looking at the percentage gain/loss of the index for each week over the previous ten years. The indicator shows that we average a gain of almost a half of a percent in the last week of December. So while the Santa Claus rally is not a sure bet, it does actually occur more often than not.

One more thing – notice the seasonal reading in the last week of November. The Seasonality indicator shows that the index averages of gain of over 2% around Thanksgiving. So while the Santa Claus rally is nice, maybe we should focus on the Turkey Rally in the coming years!