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Ho-Ho-Hold On! It's the Santa Claus Rally (So What is It)?

Is it the cheer in the air, the promise of presents, or just pure market magic? Whatever the reason, December often brings with it a special gift for investors often referred to as the Santa Claus rally.

This jolly phenomenon refers to the tendency of U.S. stocks to rise during the holiday season. It typically covers the last five trading days of the year and the first two of the new year, however this year it seems to have come early.  Let’s look at how the U.S. stock indexes performed for the month of November (see

Table 1).

These one-month results are phenomenal to say the least.  These performances in one month are enough to put a smile on your face if it occurred over one year.  Of course, past performance is no guarantee of future results, but this just goes to show that you never know when the market may turn and provide great results.  All the more reason to follow Paycheck to Wealth’s adage: “In the Market Stay In, and You Will Win.” 

But why does Santa seem to favor Wall Street during this time of year?

Several things come to mind:

  • Holiday cheer: Investors, feeling optimistic, may be more likely to buy stocks. Think of it as spreading the holiday spirit to your investments.

  • Window dressing: Fund managers might spruce up their portfolios with winning stocks before the year ends, making them look good for clients. It's like decorating their financial tree.

  • Tax considerations: Investors could be selling off losing stocks to offset capital gains taxes, leaving more money to buy potential winners. It's like using holiday bonuses to find and buy investment bargains.

Reduced trading volume: During the holiday season, there are usually fewer traders, which may lead to less stock selling pressure, allowing stock prices to drift higher.

Is the rally real or just wishful thinking?

While it’s not guaranteed, the Santa Claus rally has a decent track record. Since 1965, the end of December to early January rally has happened about 78% of the time, averaging a gain of 1.3%.  As you can see, the November rally was much better than the historical averages. That is why some say the Santa Claus rally may have come earlier this year. Although it was not an overstuffed sleigh full of riches, but it was a nice stocking stuffer for your end of year investments.

Remember, dear investors, the market is like Santa's workshop – full of surprises. Don't base your entire investment strategy on this seasonal trend. But if you're feeling a little bullish, the Santa Claus rally might just be the sugar plum your investments need.

So, keep an eye out on the markets for the rest of this year, listen for sleigh bells on Wall Street, and maybe leave out some cookies for Santa to thank him for the holiday cheer. You never know what the holiday season might bring!  And as always, please contact Paycheck to Wealth with your investment questions or if you need any assistance.  Happy Holidays!

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