Is Santa about to descend on Wall Street? The so-called Santa Claus rally refers to the last five trading days of December and the first two days of January. First popularised by the Stock Trader’s Almanac back in 1972, this historical anomaly has persisted over the last five decades, with the S&P 500 gaining an average of 1.3 per cent during this short period. Seasonal strength is a global phenomenon, according to “Yes, Virginia, There is a Santa Claus Rally”, a 2015 study that examined returns in 16 different countries.
A number of calendar factors may be at play, like the January effect (stocks have historically done well in January), the turn-of-the-month effect (stocks do better at the start and end of months) and the pre-holiday effect (stocks tend to do better prior to holidays). Add in the feelgood factor associated with this time of year, and it becomes clear why this is, to borrow from the Andy Williams song, the most wonderful time of the year for investors.