Santa Claus rally explained: what traders should know IG Australia

A Santa Rally in the stock market can have a significant impact on stock prices and investor behavior with many stocks experiencing upward momentum. Additionally, the Santa Rally can influence investor behavior, leading to increased buying activity and a sense of bullishness in the market. With many traders away on vacation, trading volumes dwindled, creating an environment where even modest buying activity had an outsized impact on stock prices. The rally commenced around mid-December, and as Christmas drew near, major indices like the S&P 500 and the Nasdaq showed a steady upward trajectory. Moreover, the optimism extended into the first trading days of January, with investors ringing in the New Year with broad smiles as market indices reached new highs.

At Market Turning Points, we simplify this process by providing daily forecast charts, automated signals, and expert insights to help you time market entries and exits with precision. Our cycle analysis ensures you’re always trading in alignment with market trends, eliminating the guesswork from your strategy. Yes, December is historically a strong month for stocks, buoyed by the Santa Claus Rally and year-end portfolio adjustments. The chart above depicts the Santa Claus rally between the last week of December and the New Year.

Technology is changing our world by the minute, from blockchain revolutionizing how money moves around to artificial intelligence reshaping jobs. I think it’s crucial to keep up with these changes, or risk being left behind. After Hirsch wrote about the pattern, it seemed to become part of the investing lexicon by the early 2000s when a number of references were made to the term in the financial media. The likelihood of a Yuletide bounce this year seem to be based on how traders decide to perceive forthcoming economic data.

People already invested in global trackers will benefit from a diversified portfolio, which will bake in areas of strong performance from countries where they occur. “Since the FTSE 100’s formation in 1984, December has outperformed other months by 1.93 percentage points, returning an average 2.29% and accounting for 36% of its yearly performance,” he says. Discover how to increase your chances of trading success, with data gleaned from over 100,00 IG accounts.

Historical Performance of the Santa Claus Rally

Just because the Santa Claus rally does usually happen, and it often predicts the market the following year, that doesn’t mean it will continue to do so. If investors anticipate it, they are likely to behave differently, and market participants may adjust according to the expectation of a Santa Claus rally. The volume of trading can be very low during the festive season, meaning that a bounce in the prices of a relatively low number of stocks can hugely flatter the overall picture. For instance, in 2018, despite market volatility throughout December, the rally still materialized, with the S&P 500 rising 1.3%. In 1999, when markets were already trending upward, the rally added to existing momentum.

• Liquidity conditions play a significant role in shaping price movements during the Santa Claus Rally.
• Stay on top of upcoming market-moving events with our customisable economic calendar.
• Interestingly, even in the 2008 Global Financial Crisis, the FTSE enjoyed a Santa Rally, and again during the pandemic in 2020 and 2021.
• This involves trading on leverage, which can mean higher returns but also exacerbates losses.

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However, a Santa Claus rally isn’t always an accurate predictor of gains the next year. Yale Hirsch first documented the pattern in 1972, writing in “Stock Trader’s Almanac” that the S&P 500 had gained an average 1.5% during that seven-day period from 1950 through 1971. The pattern has held true since 1950, with the broad market index increasing an average of 1.3%. Additionally, the market has gained during those days in 34 of the previous 45 years, or more than 75% of the time. Investors can adopt different strategies depending on their risk tolerance and investment objectives.

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However, external factors like geopolitical events and oil price fluctuations can also impact energy stocks. No, US and UK stock markets are closed on Christmas Day, with reduced hours on Christmas Eve. Fund managers frequently rebalance their portfolios to improve year-end performance optics.

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• Using the week leading up to Dec. 24 over two decades, we find there is no tangible or reliable Santa Claus rally.
• The festive atmosphere can encourage risk-taking behaviour, contributing to bullish sentiment and lifting markets.
• Attributing stock market movements to a specific time of year, like the holiday season, may be coincidental rather than indicative of a reliable pattern.
• Low trading volumes combined with increased investor activity can create heightened volatility, posing risks for inexperienced traders unprepared for sudden price swings.
• These activities create more trading activity as investors adjust their portfolios before the year ends.
• The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.

However, weaker-than-expected results can dampen enthusiasm, counteracting any seasonal cheer. The Christmas period is unique in the trading calendar, shaping market behaviour in ways that stand out from other times of the year. While some effects align with holiday-driven sentiment, others reflect broader seasonal trends. The holiday season tends to inspire positive sentiment, as investors anticipate better times ahead. This psychological boost often drives increased buying activity, contributing to the rally’s upward momentum. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.

Building this sense of pride goes beyond motivational talks or performance reviews – it’s about cultivating an environment where employees truly enjoy and take pride in their roles. But sentiment has taken a bit of a hit since the minutes of the rate-setting committee’s discussions were released at midday. The prospects for future interest rate cuts this year have suffered a blow, according to the latest financial market forecasts.

According to The Wall Street Journal, historically, the S&P 500, the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite have risen about 80% of the time during the Santa Claus rally period. The average returns for the S&P 500, the Dow, and the Nasdaq Composite over the period have been 1.3%, 1.4%, and 1.8%, respectively. The hype surrounding the Santa Claus rally can lead to overtrading or ill-timed decisions, particularly for less experienced traders. Maintaining a disciplined approach, potentially combined with clear risk management strategies, can potentially help mitigate this issue.

For instance, Santa Claus rally dates for 2024 start on the 24th December and end on the 2nd January, with stock markets closed on the 25th (Christmas day) and the 28th and 29th (a weekend). Several theories try to explain the Santa Claus rally, including investor optimism fueled by the holiday spirit, increased holiday shopping, and the investing of holiday bonuses. Another theory is that this is the time of year when institutional investors go on vacation, leaving the market to retail investors, who tend to be more bullish.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. The period has historically shown higher stock prices exness broker reviews about 79% of the time since 1950.

By keeping a balanced view and taking into account broader market dynamics, investors can more effectively navigate the Santa Rally and make informed decisions for the upcoming year. While its historical patterns often result in seasonal optimism and reduced trading volumes, it can also bring challenges like volatility and unpredictability, especially for newer investors. Although data has shown that the Santa Claus rally period has generated more positive returns than negative returns, there is no Best high yield dividend stocks way for traders/investors to predict whether it will happen again.

This involves trading on leverage, which can mean higher returns but also exacerbates losses. And it isn’t just the FTSE that can benefit from a Santa rally, with stock indices around the world potentially affected. Shopping around for the best rates and taking advice will help them to manage the inevitable rise in rate. They will be bracing themselves for a hike in payments despite the improvements in the market, as rates have share consolidation edged back down.

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When Santa only has coal for the stockings—i.e., stocks decline during this period—this has often preceded significant market downturns. Notable examples include 1999 when a 4.0% decline during the Santa Claus rally period was followed by the Dow’s 37.8% slide over the next 33 months, and 2007, which preceded the 2008 financial crisis. A successful Santa Rally often implies a positive outlook for the next year’s returns, but investors should remain cautious and consider other market factors. In 2018, the S&P 500 gained 6.6% in the last four trading days of December, marking a market bottom and leading to a 29% rise in 2019.

While there is evidence this is a real phenomenon, there has been limited analysis of the effect. Past performance is not an indicator of future returns, and risk management tools like stop losses may be in order. While you can get a broad idea of when a Santa rally might start by looking at historical data, each year’s Santa rally will be different.