‘Santa rally’ yet to appear on Wall Street
Santa normally showers investors with the gift of stock market gains near year’s end. But so far this year, the “Santa Claus rally” has yet to appear. And that could be cause for concern.
The reason: If the stock market doesn’t go up in the final five days of the year and the first two days of the New Year (a seven-day period which encompasses the Santa rally), history shows the market often runs into trouble, according to a seasonal quirk popularized by The Stock Trader’s Almanac.
“Santa’s failure to show tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices,” the Almanac warns.
Stocks have declined the first two days of the seven-session Santa rally span that began Dec. 22 and ends Jan. 3.
The good news is stocks tend to rise in this seven-day stretch. The Standard & Poor’s 500 stock index has posted an average gain of 1.7% and gone up 78% of the time since 1928, according to data from Oppenheimer, a Wall Street firm. The bad news is when stocks don’t rise during these seven days, performance tends to be weak in the months ahead. In fact, the S&P 500 was down 1.2% three months after a negative return during the Santa rally period.
Bears stress that when the Santa rally didn’t materialize in 1999 and 2007, brutal bear markets followed. Of course, this seasonal market reaction isn’t always foolproof. Still, with everyone betting on more gains ahead for stocks, investors might get spooked if Santa doesn’t deliver.