Will There Be a Santa Claus Rally?  Who Cares?

Snow in the air, holiday decorations, egg nog…yes, it is that magical time of the year when Wall Street pundits start prognosticating about a possible “Santa Claus Rally.”

Jim Cramer of “Mad Money” fame on CNBC believes, “stocks may fall further before powerful 'Santa Claus rally' kicks in.

Similarly, from Seeking Alpha: Santa Claus Rally Is Coming, But Will Markets Correct First?

Stock pickers even guess how Santa may help particular stocks, with headlines such as 7 Stocks That are Ready For a Santa Claus Rally or Seeking Santa; Finding the top shares for the 2021 Santa Claus Rally or even COVID Correction Or Santa Claus Rally? 3 Top Stocks For Any Course.

And it’s not just financial markets, even Bitcoin aficionados are hoping for some of Santa’s magic.

First coined in 1972, the Santa Claus rally is a stock market surge that is supposed to occur in the last five trading days of the year and the first two trading days of the new year--though sometimes, it is broadened to stock performance in most of December.

A strong Santa Claus is also supposed to portend up markets for the following year.

Historically, December has been a good month for stocks markets. From 1950 -2020, the S&P 500 has enjoyed 53 up years in December and only 18 down years, with an average return of 1.39%.[1] Not too bad, and it certainly beats lumps of coal in your stocking.

All kinds of reasons have been proposed for why December should have such strong results, including holiday optimism, holiday shopping, and holiday bonuses. But this wouldn’t explain why November has returned an average of 1.53% since 1950 and April (the best performing month of the year) averaged 1.56%.[2] Yet, surprisingly, no one speaks of an Easter Bunny rally.

And in case you are curious, the worst performing month, historically, is September, which has returned -.62% since 1950.[3]

While all this may be entertaining, unfortunately, there are some investors, many of them Wall Street pros, who take data mining anomalies such as the Santa Claus rally seriously, and try to profit from them. Sure, stocks have gone up 75% of the time in December. But this also means they fell 25% of the time.

Markets offer plenty of potential rewards for patient, long-term investors without having to rely on speculative short-term trading strategies named after fictional characters.

[1] www.moneychimp.com/features/monthly_returns.htm

[2] Ibid

[3] Ibid

Symmetry Partners, LLC, provides this communication on this site as a matter of general information. Information contained herein, including data or statistics quoted, are from sources believed to be reliable but cannot be guaranteed or warranted. Nothing on this site represents a recommendation of any particular security, strategy, or investment product. The opinions of the author are subject to change without notice. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. All content on this site is for educational purposes and should not be considered investment advice or an offer of any security for sale. Please be advised that Symmetry Partners does not provide tax or legal advice and nothing either stated or implied here on this site should be inferred as providing such advice. Symmetry Partners does not approve or endorse any third party communications on this site and will not be liable for any such posts.

Diversification seeks to reduce volatility by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance is no guarantee of future results. Investing involves risk, including the loss of some or all of your principal.

All indexes have certain limitations. Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance. Actual performance for client accounts may differ materially from the index portfolios.

S&P 500 Index: Widely regarded as the best single gauge of the U.S. equities market, this market capitalization-weighted index includes a representative sample of 500 leading companies in leading industries of the U.S. economy and provides over 80% coverage of U.S. equities.

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