DECEMBER 26-January 4
SANTA CLAUS RALLY
One of the more well-known Wall Street seasonal patterns is the Santa Claus rally. Although this historically bullish time for equities properly refers to the last five days of the year and first two days of the following year, people generally associate it with the entire month of December. Going back to 1950, no month is more bullish, as the average gain for the S&P 500 is 1.6% and the index is higher 76% of the time, both the highest of all 12 months. When the S&P 500 is up more than 5% for the year heading in December (like 2016 likely will be), this jumps to an even stronger average gain of 2.1% during December.
The traditional Santa Claus rally timeframe (the last five days of the year and first two days of the following year) have gained an average of 1.4% and have been higher 77% of the time since 1950. What is interesting is in the past two years these historically strong seven days have been lower by 3% two years ago and 2.3% last year and the month of January was down 3.1% and 5.1%, respectively. In other words, if Santa doesn’t come, we could be in for a rough January.
CONCLUSION
December is an important month for global events. Any of these events may move global markets, and with many potential market-moving events packed close together, it could be time to buckle your seat belts. Although this is the feel-good time of the year and equity markets are historically higher, we advise preparing for a potentially bumpy ride.
Most importantly, we wish each of you a happy holiday season filled with happiness, health, and cheer.
Thank you to Matthew Peterson for his contributions to this report.
John J. Canally Jr., CFA, is the chief economic strategist at LPL Financial.