Santa Claus Rally for Stocks This Year? Maybe, but Not Likely

Chart of the S&P 500 (SPX) Highlighting Decembers for 10 years - Santa Claus Rally?
Chart of the S&P 500 (SPX) Highlighting Decembers for 10 years – Santa Claus Rally? – Source: and TradingView

We took the liberty of charting the monthly S&P 500 (SPX) movement for the month of December going back around 10 years. Our purpose was to see if there’s anything to this notion of a ‘Santa Claus Rally’ in the stock market that we always hear about.

What is a Santa Claus Rally?

A Santa Claus Rally is simply a rally in stocks towards the very end of the year. Theoretically, such a rally could be based on holiday cheer and optimism, tax considerations, and/or investments of holiday bonuses.

Others say that a Santa Claus Rally happens because institutional traders are on vacation during this time, leaving the markets to retail investors. And retail investors are usually more bullish than institutional investors.

What Really Happens in December?

The chart is pretty clear. Each ‘candlestick’ represents a month of price action. The highlighted ones in blue rectangles are all Decembers. Green candles occur when the close of the month was above the open. These are net bullish months. Red candles occur when the close of the month was below the open. These are net bearish months.

For the past ten years, since December of 2008, most candles were green (bullish), and only two were red (bearish). This means that most Decembers were relatively bullish, conforming to the Santa Claus theory.

BUT – and this is a big but – this year thus far is VERY red. In fact, it’s a much bigger red candle than we’ve seen in the last decade and more.

Of course, the month’s not over yet, so anything can happen. But for this December to actually turn green, we’re going to need a Santa Claus Rally to end all Santa Claus Rallies. And for that to happen, much needs to change within the span of about two weeks. Global growth has to surge sharply and trade tensions have to go away. Volatility has to return to normal and investors need to gain back all of their lost confidence. Will all this happen by New Year’s? Maybe, but not likely.

IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors. 

Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.

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