Since the 1970s, the term “Santa Claus Rally” has been synonymous with rising stock prices during the last five trading days of December and January’s first two trading days. Coined by Yale Hirsch in his 1972 book, “The Stock Trader’s Almanac,” this phenomenon has become a well-documented pattern on Wall Street. The standard explanation is more psychological than anything else and relates to the positive spirits surrounding the American public and the investors’ community. Usually, companies in the retail industry have had a tendency to up their stock’s value in the final days of each year. Still, the broader industries have also enjoyed the good vibes and Christmas spirits.
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Historical Context
The Santa Claus Rally is not just a whimsical name; it reflects a consistent trend in which the stock market tends to post gains during this period. Historically, the S&P 500 (SPX) has risen about 75% of the time during these seven trading days, with an average gain of 1.3%. There are, as implied, in the opening paragraph several factors contributing to this rally:
Holiday Optimism: The festive season brings a wave of consumer spending and general positivity, which can boost investor sentiment.
Tax Considerations: Investors often use tax losses before year-end and reinvest them, which can drive stock prices up.
Portfolio Rebalancing: Fund managers adjust their portfolios to optimize returns for the new year, increasing market activity.
Low Trading Volume: With many institutional traders on holiday, lower trading volumes can lead to less resistance against upward price movements.
Who Has Benefited in the Past
Over the years, several companies have consistently enjoyed the benefits of the Santa Claus Rally. For instance, Apple (NYSE:AAPL) and Amazon (AMZN) have often seen their stock prices rise during this period, driven by strong holiday sales and positive market sentiment. In 2018, the S&P 500 experienced its strongest Santa Claus Rally, surging 6.6%.
This Year’s Candidates
As 2024 comes to a close, several companies are in place to benefit from the Santa Claus Rally:
Tesla’s (TSLA) stock’s recent 6% climb and positive strides in the electric vehicle market make it a strong contender. Broadcom (AVGO), the semiconductor giant, has seen a 2% increase, reflecting high demand in the tech sector. Netflix (NFLX), the streaming service, continues to attract subscribers, positioning it well for year-end gains. Amazon (AMZN) dominates e-commerce and cloud computing, with its stock rising by about 2%. Finally, there’s AbbVie (ABBV), the biopharmaceutical company, which, despite ongoing challenges, its robust pipeline, and recent positive topline results from its Phase 3 TEMPO-2 trial – evaluating tavapadon as a monotherapy for early Parkinson’s disease – make it an attractive investment.
Happy Christmas Rally to Everyone
As we approach the final trading days of 2024, investors are hopeful that the Santa Claus Rally will once again boost their portfolios. Whether driven by holiday cheer, strategic rebalancing, or speculative buying, this seasonal trend remains a fascinating aspect of market behaviorism.
