The Santa Claus Rally
December 13, 2022
Kara Murphy, CFA
We all know that Santa Claus is real, but what about the Santa Claus Rally?
Read more about this mysterious phenomenon and our odds of seeing one this year in this week's Markets in a Minute.
Will Santa Claus Be Coming to the Market?
Over the past few weeks, American households across the country have been ramping up for the holiday season, which is both a wonderful and sometimes hectic time of year. From gatherings of friends and family to gift-giving and holiday shopping, there is plenty to look forward to around the holidays—though holiday cheer isn’t just for kids. Hot chocolate and mistletoe often herald the so-called Santa Claus rally, when stocks rise beginning the week before December 25 through the start of the new year.
Typically, the sharp uptick occurs during the last five days of trading at the end of the year and the two initial trading days in the new year.
Stocks in December
While the reasons for Santa's arrival in the market remain mysterious, historically, December has consistently been one of the stock market's best-performing months. Since 1950, the S&P 500 has had an average return of 1.42% during December. Of those 72 years, the index rose 54 times and only fell 18 times. Other major indices and the market as a whole have also experienced historically positive performance during December:
• The Dow Jones Industrial Average, S&P 500, and Russell 2000 Indexes have ended higher in December more often than any other month
• The Russell 2000 has gained ground in December 83% of the time since 1987, leading to a 2.8% average return—the best average return for any month of the year
• The Dow Jones has risen in December 71% of the time since 1896, for an average 1.4% return
• Even when stocks are down for the year heading into December, they have increased eight out of the past nine years
Average Monthly Performance
See attached graphic: https://www.kestraim.com/market-insights/santa-claus-rally-12-13-2022
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index. Source: The Wall Street Journal with data from Dow Jones Market Data. Index proxies: S&P 500, Dow Jones Industrial Average, Nasdaq, and Russell 2000. Data as of November 30, 2022.
What Should Investors Do?
While children may be seeing sugar plums, investors are keeping a close eye out for a stock market rebound. While December offers many reasons for optimism, nothing is certain, and there remain numerous risks to consider. Rising inflation, an overactive Federal Reserve or disappointing corporate earnings could conspire to put coal in investors’ stockings. Whether or not a Santa Clause Rally happens this holiday season, it would behoove investors to manage their expectations and remember that wealth is created through years of disciplined investing and not Christmas miracles. We can save the miracles for 34th Street and a long-term investment strategy for our portfolios. Invest wisely, live richly, and have a very happy holiday,
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. Does not offer tax or legal advice.