Keep a lookout for a Santa Claus rally
By Dian Vujovich
Santa Claus may have finished his journey around the world and slid down everyone’s chimney delivering all sorts of wanted and unexpected goodies to children big and small, but, believe it or not, he still has work left to do on Wall Street.
Created 40 years ago, there’s a little something called the Santa Claus rally that investors all might want to be mindful of.
Jeff Hirsh, editor in chief of the Stock Trader’s Almanac, came up with this notion of a year-end holiday rally in 1972. And just so you know for sure, the Santa Claus rally has just begun.
The rally, says Hirsh, ” is the last five trading days of the year plus the first two of the New Year.”
How this seasonal event came into being wasn’t simply because of sugarplums dancing in Hirsh’s head, although I’m guessing some non-believers might think that so. Nope, it’s a rally that picked up its name thanks to past market year-end statistics.
In a Breakout interview at Yahoo Finance, Hirsh pointed out that ever since 1950, the S&P 500 has averaged gains of 1.5 percent during the 7-day period between Christmas and the first two days of the New Year. While that’s not much, it’s still something. The reason for the gains, he says is, “There’s this general buying bias by the pros at the end of the year after tax-loss selling.”
With fiscal cliff concerns and worries over changes in tax consequences, this year Santa might come to town in a really big way. Then again, he might not.
If, by the end of trading on January 3rd , there has been no rally, investors might want to consider Santa’s no-show as an indication of how the coming year is going to unfold for stock lovers.
“What’s important is not to catch this little rally but to use it as indication for what may happen in the coming year,” he says.
Today is Wednesday, December 26th and I’m filing this blog at 10:15 a.m. If the first 45 minutes of trading offer any clue of what’s to come, this year’s Santa Claus rally has started the day in positive territory.
Time will tell whether the guy has got enough gas in his sleigh for a year-end rally or not. So, guess we’ll all just have to wait for Santa a little bit longer.
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