It seems every year around this time we hear about the Santa Claus Rally, a period of time when markets supposedly provide a bullish backdrop for stock investors. With just a few days left in the year I thought it might be interesting to test the Santa Claus rally assumption. Examining data over the past two decades shows the last two weeks of December have indeed been historically bullish. In fact, decidedly so. Since 1992, on average investors would have added an additional 1% annually by simply buying the S&P 500 Index for the last 10 trading days of the year, and selling on New Year’s Eve- not accounting for dividends.
This simple Santa Claus strategy of remaining fully invested the last 10 trading days of the year would have provided positive returns for 15 of the past 20 years, an astonishing 75% win rate. And not just during Bull Markets. In 2000 and 2001 the Santa trade would have delivered a +0.62% and +1.2% gain respectively. Even in the horrific 2008 market decline, the Santa Claus trade would have been relatively flat, with a slight loss of -0.13%.
Just A Recent Phenomenon?
The last twenty years includes the record breaking bull market of the 1990’s, which may be providing a positive skew to the results. Let’s take the data back fifty years to include a broader range of economic climates. The broader data set includes the 1972-74 bear market and the inflation and interest rates of the 1980s as well as the data of the past twenty years.
Quite surprising, over the past fifty years the Santa Claus Rally results are the same: only 11 losing years out of 50, a constant 78% win ratio. It’s no wonder investors and professionals alike are conditioned for positive thinking the last two weeks of the year.
| Year | Profit |
| 1962 | 1.2% |
| 1963 | 0.4% |
| 1964 | 1.0% |
| 1965 | 0.4% |
| 1966 | -1.5% |
| 1967 | 1.5% |
| 1968 | -3.0% |
| 1969 | 3.2% |
| 1970 | 2.3% |
| 1971 | 1.8% |
| 1972 | -0.2% |
| 1973 | 5.2% |
| 1974 | 1.5% |
| 1975 | 1.2% |
| 1976 | 3.1% |
| 1977 | 1.8% |
| 1978 | 0.8% |
| 1979 | -1.3% |
| 1980 | 2.2% |
| 1981 | -0.5% |
| 1982 | 2.3% |
| 1983 | 1.6% |
| 1984 | 2.2% |
| 1985 | 0.3% |
| 1986 | -2.2% |
| 1987 | 1.7% |
| 1988 | 0.5% |
| 1989 | 0.9% |
| 1990 | 1.3% |
| 1991 | 9.0% |
| 1992 | 0.1% |
| 1993 | 0.0% |
| 1994 | 0.1% |
| 1995 | -0.1% |
| 1996 | 2.0% |
| 1997 | 0.5% |
| 1998 | 4.2% |
| 1999 | 3.4% |
| 2000 | 0.6% |
| 2001 | 1.2% |
| 2002 | -2.6% |
| 2003 | 3.3% |
| 2004 | 1.5% |
| 2005 | -1.5% |
| 2006 | -0.6% |
| 2007 | 1.6% |
| 2008 | -0.1% |
| 2009 | 1.7% |
| 2010 | 1.1% |
| 2011 | 3.1% |
| 2012 | ? |
Source: Anchor Capital Management Group, Inc. Data provided by Bloomberg. Results based upon closing index prices, and does not include dividends.
Fiscal Cliff Party Crashers.
Volatility has picked up dramatically in December as all eyes are focused on the pending Fiscal Cliff. So far in 2012 the Santa Claus Rally has failed to deliver, resulting in a small loss so far. With two days to go until the end of the trading year, there is still time for Santa to show up and deliver his stock market gifts. And with the majority of Wall Street now quite Bearish over the lack of Fiscal Cliff progress, the stage may be set for a last minute short-squeeze rally if a temporary solution is found by congress.
Yes, There Is A Santa Claus Effect.
A deep look at the data shows that historically there has been a positive skew to the stock market during the last two weeks of the year. But there are some things that even Santa can’t overcome. We’ll know in just a few trading sessions whether Washington has spoiled this year’s Santa Claus Party.
