The "Santa Claus Rally" (SCR) is the first of 3 indicators that traders use to gauge the market for the New Year. It's a fun, hopefully postive way to start the year.
Will Santa Claus bring us returns for 2022
In 1972 Yale Hirsch, who started the Stock Trader’s Almanac, discovered a trend of higher market returns between the first trading session after Christmas and the first two trading sessions of the new year. He named this trend the “Santa Claus Rally” (SCR). Since the 1950s the S&P 500 has gained an average of 1.3% during the SCR. The rally is now formally measured as the last five trading sessions after Christmas and the first two trading sessions in January. This year, the rally started on 27 December 2021 and ends on 4th January 2022 – for those interested in trivia, the latest it can start and the latest start in 11 years!
There are many theories around the existence of the rally including holiday shopping, optimism fuelled by the holiday spirit, institutional investors settling their books before going on holiday and leaving the market activity to retail investors, US investors taking tax profits before the end of their financial year. It doesn’t matter what the reasons are, and in fact it may be completely random as many anomalies are. Regardless, there are some interesting statistics around it. There isn’t a single seven-day combo out of the full year that is likely to be higher than the 78.9% of the time higher than we’ve seen previously during the SCR.
We all know about lies, lies and statistics, but why this is fun to watch is illustrated in the following table from LPL Research which shows how the SCR has performed since 2000. Usually, when these seven days are higher, it leads to strength in January and beyond. What stands out is that in those years when Santa didn’t come, January was lower each year.
In the same period there have only been six times that Santa failed to show in December, and January was lower in five of the six times. The believers are convinced by the fact that the bear markets of 2000 and 2008 took place after a no-show by Santa!
There are other trends and statistics that are watched, and then we have the “Trifecta” that looks at three indicators combined. The Trifecta consists of the Santa Claus Rally, the “First Five Days Early Warning” system and the January Barometer. When all three readings are up, the S&P 500 has been up 90% of the time (28 out of 30 years) with an average gain for the year of 17.5%.
Good news so far as we kick off 2022. The Santa Claus Rally is positive over the period. The First Five Days will be in on the 7th of January. And the January Barometer, which simply states “that as the S&P 500 goes in January, so goes the year”. Since 1950, the January Barometer has been right 84.5% of the time according to the Stock Traders Almanac.
Obviously our advice to you is that “past returns are no guarantee of future returns.”, and sticking to a well researched strategy over a longer period of time to compound returns is far more valuable than trying to time exactly when the returns may or may not come through! It’s fun to look at, but by no means drives our investment philosophy!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.
Will Santa Claus bring us returns for 2022
In 1972 Yale Hirsch, who started the Stock Trader’s Almanac, discovered a trend of higher market returns between the first trading session after Christmas and the first two trading sessions of the new year. He named this trend the “Santa Claus Rally” (SCR). Since the 1950s the S&P 500 has gained an average of 1.3% during the SCR. The rally is now formally measured as the last five trading sessions after Christmas and the first two trading sessions in January. This year, the rally started on 27 December 2021 and ends on 4th January 2022 – for those interested in trivia, the latest it can start and the latest start in 11 years!
There are many theories around the existence of the rally including holiday shopping, optimism fuelled by the holiday spirit, institutional investors settling their books before going on holiday and leaving the market activity to retail investors, US investors taking tax profits before the end of their financial year. It doesn’t matter what the reasons are, and in fact it may be completely random as many anomalies are. Regardless, there are some interesting statistics around it. There isn’t a single seven-day combo out of the full year that is likely to be higher than the 78.9% of the time higher than we’ve seen previously during the SCR.
We all know about lies, lies and statistics, but why this is fun to watch is illustrated in the following table from LPL Research which shows how the SCR has performed since 2000. Usually, when these seven days are higher, it leads to strength in January and beyond. What stands out is that in those years when Santa didn’t come, January was lower each year.
In the same period there have only been six times that Santa failed to show in December, and January was lower in five of the six times. The believers are convinced by the fact that the bear markets of 2000 and 2008 took place after a no-show by Santa!
There are other trends and statistics that are watched, and then we have the “Trifecta” that looks at three indicators combined. The Trifecta consists of the Santa Claus Rally, the “First Five Days Early Warning” system and the January Barometer. When all three readings are up, the S&P 500 has been up 90% of the time (28 out of 30 years) with an average gain for the year of 17.5%.
Good news so far as we kick off 2022. The Santa Claus Rally is positive over the period. The First Five Days will be in on the 7th of January. And the January Barometer, which simply states “that as the S&P 500 goes in January, so goes the year”. Since 1950, the January Barometer has been right 84.5% of the time according to the Stock Traders Almanac.
Obviously our advice to you is that “past returns are no guarantee of future returns.”, and sticking to a well researched strategy over a longer period of time to compound returns is far more valuable than trying to time exactly when the returns may or may not come through! It’s fun to look at, but by no means drives our investment philosophy!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.