The Santa Claus Rally

We’re right at the historically best time of the year for stocks. Actually, that’s an understatement. Historically, this is the best time of year by far. Over the last 118 years, one-third of the Dow’s annual gain has come in the next half a month.

Let me be clear: I don’t think there’s any useful trading information in these historical seasonal patterns. I would never make an investment decision based on the calendar. Plus, if you run enough data, some oddball pattern will emerge. That doesn’t mean it’s real.

But I do think these patterns are interesting for their own sake. My guess is that the ending of each year brings forth some optimism for the new year.

Now let’s dig into the numbers. Crunching 118 years’ worth of data we find that from December 21 to January 6, the Dow has gained an average of 2.83%. That’s 16 days and trading is always closed on New Year’s Day. That’s 38.4% of the Dow total annual price gain (dividends aren’t included) coming in 4.4% of the year. What’s also interesting is how meager the gains have been for the rest of the time.

Here’s how the Dow has historically performed at this time of year. To make it more readable, I’ve set the index to 100 as of December 10.

Here’s what the average year looks like:

Posted by Eddy Elfenbein on December 23rd, 2014 at 9:12 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.