If you ask around, most people have heard the term Santa Claus Rally In the markets. It always feels like stocks will perform better by the end of the year.
call it Santa Claus RallyCall it window dressing, call it whatever you want. However, it appears that most investors take a positive stance during the festive period. But does it really matter? Or is it just some unconscious bias that a person develops over the years?
Well, let’s try to bust that myth – if it exists. The best approach is definitely to take a more seasonal approach. So, let’s take a look at how the S&P 500 has performed over the past two decades during Christmas week.
Here is a summary of the index’s performance during the festive week:
- 2024: +0.7%
- 2023: +0.3%
- 2022: -0.1%
- 2021: +2.3%
- 2020: -0.2%
- 2019: +0.6%
- 2018: +2.9%
- 2017: -0.4%
- 2016: -1.1%
- 2015: +2.8%
- 2014: +0.9%
- 2013: +1.3%
- 2012: -1.9%
- 2011: +3.7%
- 2010: +1.0%
- 2009: +2.2%
- 2008: -1.7%
- 2007: -0.4%
- 2006: +0.5%
- 2005: +0.1%
The average weekly performance during Christmas week is +0.65%. So, at least there is some credibility to the hypothesis. Santa Claus Rally,
But like everything, correlation does not always mean causation. And I would caution anyone who thinks that by the time we’re into Christmas week, stocks will rise more often.
Actually, the time between Christmas and New Year is also quite interesting. If you include this in the picture, the S&P 500 actually posted its first loss for the first time in seven years in 2024 during the interim period between the two holidays.
And even when you look at the Christmas week above, consecutive annual losses are a relatively rare occurrence.
Still, that doesn’t mean we’re due a hot streak just because. think about hot hand fallacy if you must.
As the Fed made more drastic rate cuts this month, it has dampened some of the recent market optimism. But overall, stocks are still in relatively good shape; Despite concerns about an AI bubble.
The S&P 500 is still poised for a gain of about 16% this year and to me that’s a big accomplishment. whatever Santa Claus Rally This is for this year, it wouldn’t mean much in that context.
So yes, historically and seasonally there is a pattern of stocks rising during the holiday period from Christmas to New Year. But between the recent uncertainty from the Fed and AI valuations, the thin liquidity conditions we are going to see will not necessarily lead to another round of profits in 2025.
In other words, it is a matter of anything happening during this period, even if we associate it with more positive performance in the past.
