What is “The Santa Claus Rally”?
The Santa Claus Rally is a stock market phenomenon (or calendar effect) that occurs during the year. It encompasses seven trading days – the last five days of the year and the first two days of the new year. While Santa doesn’t always visit Wall Street every year, when he does, he provides a presentation to investors in the form of positive returns.
If we look at historical market performance,
While the causation of the Santa Claus Rally has yet to be determined, at Zynergy we think it is a combination of certain events that take place at the end of the year. These include, but are not limited to:
- Investors have a feeling of optimism for the new year ahead
- Investors are in a cheerful holiday spirit
- End-of-the-year bonuses are paid and invested
- Investors who performed tax-loss harvesting in the Fall are ready to reinvest those proceeds
- Institutional and mutual fund managers purchase additional stocks to their portfolios that have done well over the past year.
- As institutional investors take off the week after Christmas, trading volumes tend to be lower. This gives the retail investor more influence on the markets, and retail investors tend to be more optimistic than institutional investors, causing the market to head higher.
While the Santa Claus Rally occurs more often than not, it is not a lock to happen yearly. Therefore, when it comes to investing, it is essential to focus on the long term. It is never wise to make investment decisions based on short-term market phenomena, as market sentiment can change very quickly, leaving you stuck “holding the bag.”
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