Each year, as we come closer and closer to the close of it, investors believe in the Santa Claus Rally.
A santa claus rally is a surge in the price of stocks that often occurs in the week between Christmas and New Year’s Day. There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week.
Also known as the “December Effect”, the rally is generally attributed to anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year.
Another reason for the rally may be fund managers “window dressing” their holdings with stocks that have performed well.
In Any case, I took a few minutes to scan the last 19 years of SPX and here’s what I discovered:
|Year||Month High||SPX HOD||Next High|
|1997||December 5||986.25||January 29|
|1998||December 30||1244.93||January 5|
|1999||December 30||1473.10||March 17|
|2000||December 11||1389.05||November 14, 2006|
|2001||December 5||1173.62||November 12, 2004|
|2002||December 2||954.28||May 28|
|2003||December 31||1109.64||January 2|
|2004||December 31||1217.33||March 4|
|2005||December 14||1275.80||January 6|
|2006||December 15||1431.63||January 16|
|2007||December 11||1523.57||February 19, 2013|
|2008||December 17||918.85||January 2 *|
|2009||December 29||1130.38||January 4|
|2010||December 29||1262.60||January 3|
|2011||December 27||1269.37||January 3|
|2012||December 18||1448.00||January 2|
|2013||December 31||1849.44||February 24|
|2014||December 29||2093.55||February 13|
|2015||December 2||2104.27||April 20 (1 Day) **|
* (666.79 March 6, 2009)
** June 6 (4 Days) then we had BREXIT then July 9 Explosion Upward
In trading, what we do is try and decipher patterns: patterns which we can use to our advantage to help in our decision making process when we factor in what’s taking place in the world/economy. Besides the coincidence that when one year sees the Santa Claus effect all the way into the final trading session or so of the year, the next year follows, but there isn’t a third (except for the flat 2011), based on the last 19 years.
For this year, having just come off a shocker of a run after Trump won the election and surpassed any and all levels ever visited by more than 150 points on the SPX, I am almost lead to believe Santa has already come this year. When you think about how we just got our interest rate hike, just like last year, and the “January Effect” of new money due to come into the market in the new year is probably already here… Santa might have come already.
We’ve got another situation though with Trump being our incoming President and that’s his promise to cut taxes, much of which was leading investors to believe would include cutting capital gains taxes. With that the “cloud” hanging over us, it wouldn’t be hard to see why investors would prefer to hold their amazing paper gains into the New Year.
DOW 20,000 still looms above us, coming just 13 points from it today, but with it as the last and final piece to the puzzle, it looks like Santa Claus may have already delivered the gifts: the time to stalk All Time Highs stocks and prepare for a possible repeat to how 2016 began.