Is Santa Claus Coming to Wall Street?

Heating Up at the Holidays

Historically speaking, the tail end of December is a good time for stocks. In what is often called the “Santa Claus rally,” stocks tend to move higher during the last five trading days of the calendar year through the first two of the new year. Of course, past performance does not guarantee future results. But markets generally move in cycles, so trends are worth noting.

The S&P 500 was positive over that seven-day period in 15 of the past 20 years, growing 0.7% each year over that time frame, on average. Since 1950, the “Santa Clause rally” has taken the S&P 500 into positive territory 79% of the time. Going back even further to 1926, only the months of April and July have outpaced December, per data from Morningstar Direct (MORN).

Making Sense of Santa

So why do these rallies happen? The truth is many financial experts are unsure, but there’s no shortage of theories out there. Stock traders going on vacation could lead to lower trading volume. Or holiday spending could boost the economy as a whole. And some say optimism heading into the new year – or even the proverbial holiday spirit – is the reason.

Whatever the case, financial advisors note that this time of year is essentially a chance to hit refresh, with many institutions also working to square their books before year’s end. This year in particular, some are convinced the market will take a bullish turn, after the midterm elections resulted in a split Congress.

What’s Under the Tree?

Santa Claus’ magic is typically reserved for reindeer, massive sacks of toys, and fitting down chimneys. But at present, investors are wishing for crystal ball predictions – and, perhaps, hoping Santa is listening. The market could certainly use some good news, with the S&P 500 down over 15% this year, and bond prices down over 10%.

On a merrier note, some are predicting the Santa Claus rally could extend for months into – if not half of – 2023. That’s most typically linked to the results of the midterm elections, which entails legislative gridlock, something the market traditionally likes. If nothing else, it’s a chance for many to believe in the jolly old elf once again.

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