The only Santa Claus Rally that enjoys strong historical support doesn’t arrive on Wall Street until right after Christmas.
That’s important to keep in mind as beleaguered bulls look to Santa to resurrect the stock market, which is having a miserable December. For the first half of this month, the Dow Jones Industrial Average (.DJI) lost more than 5% — before losing another 500 points on Monday of this week to begin December’s second half.
Once again, the bulls’ behavior represents a triumph of hope over experience. There is no historical support for the belief that the early part of December should be good for the stock market. On the contrary, the Dow more often than not struggles during the first half of December. It’s not until late in the month does the stock market exhibit a strong seasonal upward bias.
Consider the Dow’s performance over the first half of all Decembers since 1896, when this market benchmark was created. On average it lost 0.06% in the period — virtually flat. That compares to an average gain of 0.49% in the first half of all other months of the year.
(For the historians among you: the data ignores 1914, at the beginning of World War I. The NYSE was closed from late July to early December of that year, and when it reopened the Dow plunged more than 20% — a big loss that would otherwise skew the averages.)
Seasonal tendencies don’t shift in the bulls’ favor until the last week of December. Consider the period beginning the day after Christmas and lasting through the first two trading days of January. (In focusing on this trading period, I follow the lead of the Stock Trader’s Almanac.) As you can see from the chart below, the Dow historically has produced an average gain of 1.49% during this period, versus a gain of 0.15% during all other six-trading-day periods of the year.
To be sure, the stock market doesn’t always rise during this Santa Claus Rally period. But it does far more often than it does the rest of the year. Since 1896, in fact, the Dow has risen 76% of the time from Christmas through the first two trading days of January, versus 56% of the time during all other six-day periods in the calendar. (See chart.)
The bottom line? Leave poor Santa alone. He has enough to do already without being asked to save this sick stock market. He’ll be here soon enough.
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