As the holiday week continues, many investors and traders may be wondering if a Santa Rally is anywhere in sight. Accordingly, this article delves deeper into what Santa Rallies are and recaps how the markets have been acting thus far this holiday season.
Santa Rallies Throughout The Years
There are two explanations for a Santa Rally. The first depicts it as the market’s tendency to rally the week leading up to Christmas, while the second sees it as the market’s tendency to rise the week after it up until the 2nd of January. The term was coined by Yale Hirsch in 1972 and is based on past price patterns in 1950 during the last 5 trading days of the year, whereby the S&P 500 (USA 500) increased by 1.3% against a rolling seven-day return average of 0.2%.
Furthermore, there are many factors that can lead to this rally. For example, increased holiday shopping and higher sales, as well as retail investors settling their books before going on the holiday break may contribute to the surge. In addition, increased holiday cheer and optimism coupled with higher investment rates due to holiday bonuses are believed to lead to the rally. To top things off, a large number of institutional investors usually go on their holiday vacation, which gives retail investors, most of whom are positive, more opportunities to participate. You can learn more about the topic in our article: What is a Santa Rally
Nonetheless, it is important to note that since past performance is not indicative of any future growth, Santa Rallies are just theoretical in nature and may happen randomly or not at all. (Source:Yahoo Finance)
Update: Wall Street This Christmas
As it stands, this year, the Christmas Rally is nowhere in sight which may add to 2022’S already ruthless stock market descent. This year, most of the market’s sectors suffered to keep pace with the record-high inflation, coupled with recession fears, and the interest rate hikes from central banks like the US Fed Reserve and the Eurozone’s ECB. The week before Christmas seems to be no expectation.
Some even posit that this holiday week may be even more strenuous on the markets as today, Monday the 26th, US stock and bond markets are closed. In addition, many businesses will be taking a break until 2023, and the earnings reports may come at a lower volume.
Despite this, since historical data suggests that a Santa Rally usually occurs at the end of December, some may be hoping that it will take place tomorrow Tuesday when many people return from their Christmas vacation. Those who may be anticipating a rally may even attribute it to the recent positive CPI data released in the US on December 13th, which may have indicated slowing inflation.
To their disappointment, however, it seems that recession anxiety and market jitters coupled with selloffs still seem to be the motifs this Christmas which could mean that a Santa Rally might not even happen. In addition, the positive inflation data may have been counteracted by the Fed’s less-than-stellar outlook on inflation as they indicated that hawkish rate hikes may carry on to the next year which may have increased the recession angst.
In the event that Santa does not appear on Wall Street avenue this year, this could mean more market anguish and decline since Hirsch once said that missing Santa Rallies might actually mean bearish markets. Regardless, while many analysts seem to be less optimistic about the possibility of a rally, others say that it might be too early to decide and that it might happen soon.
Before the holiday break on Wall Street, on December 23rd, the S&P 500 gained 0.59%, the Tech-Heavy Nasdaq (US-TECH 100) rose by 0.2% and the Dow Jones Industrial Average (USA 30- Wall Street) rose by half a percentage point. Despite this slight upward trend, overall these indices descended this holiday month. The DJIA fell by 3.4%, the S&P500 declined by 5.6% and the Nasdaq fell by 8.7% from the beginning of December up till the time December 23rd. And overall, the markets, generally, suffered from declines this year, which may be the reason why many analysts are bearish on Santa Rallies.
Tomorrow on the 27th of December, these indices will reopen for trading following the holiday week, so it remains to be seen whether a rally will materialize on Wall Street on not. Traders and investors may want to keep an eye on the markets this evening and see how it plays out.