Key takeaways
- Traders are waiting for the so-called Santa Claus rally, in which stocks rise from around Christmas until the second trading session of next year.
- This is a period when corporate news slows down, resulting in relatively stable values ​​for companies, said Paul Hickey, co-founder of Bespoke Investment Group, as money flows into the market.
- The rebound has occurred more than 75% of the time since the beginning of the century, according to data from the Carson Group.
Bulls expect Santa to put an end to the gains the stock market has made so far in 2024.
Wall Street is eager for a so-called Santa Claus rally to propel the S&P 500 (which is up about 24% this year through Friday's close) to new highs. According to Wall Street tradition, the stock market rises steadily during the last five trading days of the year and the first two sessions of the next.
This is a period when corporate news slows down, resulting in relatively stable values ​​for companies, said Paul Hickey, co-founder of Bespoke Investment Group, as money flows into the market. Many people invest in bonds and make transactions to minimize taxes, Hickey said.
The market is well poised to rebound this year, said Ryan Detrick, chief market strategist at Carson Group, even though the Dow Jones Industrial Average recently fell for several consecutive days and other indexes faltered. (The S&P 500, Nasdaq Composite and Dow finished the week lower.)
There is precedent for weakness in the early part of December, Detrick said, and a variety of other reasons (including past trade history in election years and December in general) for optimism.
“Should you still believe in Santa?” Detrick wrote in a blog post. “We think so.”
Santa has a history of delivering for Wall Street at the end of Christmas. From the fifth last trading day of the year to the second session of the following year, the S&P rose 76% of the time from 1999 onward, according to Carson Group analysis. The analysis shows that profits averaged 1.7% when there was a rally.
“It's a modest rebound,” he said. Almanac editor-in-chief Jeffrey Hirsch, whose father coined the phrase “Santa Claus Rally.” “But when it doesn't show up, it means those merchants are nervous.”
Some significant economic downturns have emerged after stocks stumbled during these seven sessions, analysts say.
Even so, every general rule has exceptions. Last year, the S&P fell 0.9% during this period, even as the index turned around and hit an all-time high in early December.
