Market Pulse: The Santa Claus rally
November 20, 2013
The Christmas season seems to start earlier every year. This year several retail chains are offering Black Friday sales on Thanksgiving day. I'm not a fan. I've had a family rule that the Christmas season doesn't start until after Thanksgiving (my kids weren't too happy with this when they were young). This year I'm caving in because this column is about the "Santa Claus rally."
Stock market veterans know a Santa Claus rally refers to market strength that often occurs at the end of the year. But is it real? Jay Kaeppel, author of Seasonal Stock Market Trends, has an answer.
He found one of the most bullish time periods begins at the close of trading on the Friday before Thanksgiving and ends on the third trading day in January. How good is this period?
There are 64 periods for the Santa Claus rally from 1949 through 2012. Of those, the Dow rose on 54 of them. In other words, the Dow has advanced 85 percent of the time during the Santa Claus rally period. The average gain was 3.24 percent while the average gain on the up years was 4.13 percent. The best year was 1991-92 when the Dow advanced 13.90 percent. The worst year was 1977-78 with the Dow falling 3.70 percent.
Will the Santa Claus rally occur this year? The market is very extended as it enters this period. The S&P 500 is up 25 percent this year and is up six straight weeks (seven if the market closes higher this week).
That's rare. Since 1980, there are only nine occasions where S&P 500 has advanced seven straight weeks. The S&P 500 has advanced nine straight weeks only three times so a down week is due.
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There is a lot of talk of bubbles and high market valuations. Readers of this column know I disagree. If not in stocks where else would you invest? The market is due for a couple down weeks, but the Santa Claus rally has occurred in 26 of the last 28 years. It's hard to beat those odds.
David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.