Is The Santa Claus Rally Real?

It appears that way. Historically, investors have seen gains in the S&P 500 the last 5 trading days of the year plus two spillover days into the new year.

The theory goes that during this time period investors are generally more optimistic. Perhaps they are investing based on their coming bonuses. Or, maybe it's simply in anticipation of The January Effect, when stocks generally rise as investors pour cash into the market after sells in December as a result of Tax Loss Harvesting.

Whatever the reason, this time of year can give investors reasons other than presents and eggnog to celebrate.

According to WikiInvest, since 1969 the S&P 500 has gained 1.6% on average during the Santa Claus rally. The Seeking Alpha Blog takes it a bit further; a 1.2% average gain going back to 1951. The latter even charts out the average percent gains by day.

Source: Is (The) Santa Claus (Rally) Real? Seeking Alpha, Dec, 18th, 2015.

The 6th day after Christmas seems to be the largest average single day gain. What's interesting is following the largest day average gain is a period of consecutive days of small losses.

I also find it interesting that the Santa Claus Rally may appear Outside U.S. Markets as well.

If I were a market timer - which I'm not - I might consider buying just before Christmas, selling at the end of the 6th day, then buying again in the middle of January (most of January's gains typically arrive in the second half of the month). If I believed in tactically timing obscure market cycles like this - again, I don't - I might even try juicing my returns with leverage via options (doubling or tripling down on market direction bets).

I won't be doing that personally, nor will I be executing it for clients. A massive lack of peer reviewed research & verifiable data being the reason. However, the idea was fun to come up with, as well as poke a little fun at.

Wherever you go and whatever you do this holiday season, try to forget about market returns; even if you enjoyed this fun little post. It's probably good for you! Be safe and warm this holiday season, and see ya in 2016!