‘Santa Claus rally’ could put a bow on a good year
Ending on a strong note can offer investors a peek into 2020 markets
Saint Nick won’t be leaving a lump of coal in investors’ stockings this year.
That’s because experts see the stock market rising during the final days of 2019 and into early next year – an event known as the Santa Claus rally.
Since 1969, the Standard & Poor’s 500 index has averaged a gain of 1.3% over a seven-day “Santa Claus rally” period that includes the last five trading sessions of the year and the first two trading days of the new year, according to the Stock Trader’s Almanac.
For those saving for retirement, a rally over the spell typically doesn’t provide hefty gains for the long haul, but it does help investors anticipate what’s on the horizon for the stock market, portfolio managers say.
“It looks like Santa Claus is coming
“It looks like Santa Claus is coming back to town this year.”
Jeffrey Hirsch Stock Trader’s Almanac
back to town this year,” says Jeffrey Hirsch, editor of the Stock Trader’s Almanac. “The market is firing on all cylinders.”
Historically, December has been a strong month that typically has delivered most of its gains late in the month, market experts say. The first half of the month tends to be weaker because of tax-loss selling, a practice where investors try to reduce their tax bills by selling
underperforming shares. Some analysts attribute the bounce in stocks in the latter half of December to optimism during the holiday season, yearend portfolio adjustments and investors being on vacation.
Santa’s failure to deliver typically doesn’t bode well for stocks heading into the new year. The rally, for instance, didn’t materialize in 1999 and 2007, and bear markets followed.
Investors are poised to see a lift in their portfolios at year-end on the back of easing U.S. recession fears, deescalating trade tensions and strong consumer spending. That’s a positive sign for the broader market heading into 2020, analysts say.
“There’s less economic angst than this time last year,” says Tom Stringfellow, chief investment officer at Frost Investment Advisors. “That carries us into the new year.”
U.S. stocks hit records Monday, setting the stage for an upbeat week. The Dow Jones industrial average rose nearly 100 points, putting the index up more than 20% in 2019. The S&P 500 index topped 3,200 for the first time ever this month and has rallied 28.6% in 2019, on pace for its best year since 2013. The Nasdaq Composite is within striking distance of crossing 9,000.
Stocks are expected to drift mildly higher heading into the new year, experts say.
“It’s possible we’ll see a melt-up in the markets as the year comes to a close,” says Timothy Chubb, chief investment officer at Girard. “But I don’t think we’ll see a major acceleration since stocks have already moved so much higher recently.”