The Myth of the Santa Claus Rally

Don’t get swept up in the hype – there won’t be a Santa Claus rally in the stock market this month. In fact, it won’t happen until after Christmas. While it may seem like a buzzkill to point this out, the truth is that any claims of an early rally are nothing more than wishful thinking.

A Festive Mirage

As we enter the holiday season, you’ll likely come across more and more predictions of an impending market rally. They’ll make for catchy headlines and may even convince some investors to buy more stocks. However, the reality is that the odds of a rally in November and December are no different than at any other time.

To reach this conclusion, I analyzed the maximum potential rally over the last two months of the year – from November’s low to December’s high. Of course, accurately capturing this gain would require clairvoyance, as you’d need to know exactly when the low and high points will occur. But by examining the rally in this way, we can determine if there is any unique potential for a year-end surge.

Tis’ Not the Season

The answer, unfortunately, is “no.” There is no statistical evidence to support claims of a Santa Claus rally in November and December. While the market may eventually rally during this time, it is no more likely than at any other period throughout the year.

So, as we venture into the coming weeks, remain vigilant and don’t be swayed by the allure of a Santa Claus rally. Instead, focus on long-term strategies and sound investment principles. After all, while visions of dancing sugar plums are delightful, they have no place in reliable market analysis.

The Santa Claus Rally: A Statistical Perspective

Since its creation in 1896, the Dow Jones Industrial Average (DJIA) has experienced various rally potentials throughout the year. Surprisingly, the November-December period is not the most fruitful. Let’s take a closer look at the numbers.

Charting the Rally Potential

When examining the accompanying chart, it becomes evident that there are four other two-month stretches that have greater rally potential than November-December. Although November shows an above-average potential, it falls short of meeting traditional statistical significance standards when compared to other months.

The Statistically Significant Santa Claus Rally

The much-anticipated Santa Claus rally doesn’t actually begin until the day after Christmas. According to the Stock Traders Almanac, this rally starts with the first trading session after Christmas and extends until the second trading session of the New Year. Analyzing historical data since 1896, I’ve found that during this period between holidays, the Dow has risen 77% of the time with an average gain of 1.47%. In contrast, all other periods of equal length have only produced a 56% rise with an average gain of 0.16%. These differences are statistically significant.

The Bottom Line

While the stock market is likely to rally over the next couple of weeks, it would be unwise to attribute this success to Santa Claus himself. He’s preoccupied with his other pre-holiday tasks. So, enjoy the festive season, but keep in mind the statistical realities of market performance.

More: Why stock-market bulls say ‘Santa rally’ may have already started as equities surge to kick off November

Also read: ‘Stock-market correction is over’ after broad surge amid ‘epic’ market rallies