The Santa Claus Rally

Eric Herman Headshot

Eric HermanIn this time when we all could use as much good news on the economic front as we can get, there comes some upbeat seasonal data courtesy of one St. Nick, dateline the North Pole.   

Mark Hulbert, a widely read analyst for the Wall Street Journal’s Market Watch, wrote an interesting column this week describing what market watchers now call “The Santa Claus Rally.” Seems that every year between the last trading day before Christmas and the end of the year, the stock markets perform at an unusually high level. 

Using the Dow Jones as an example, since 1986 when analysts created the statistical category for this one-week period the Dow is up an average 1.07%. That works out to more than 80% on an annualized basis. And this appears to happen with remarkable consistency. According to Hulbert, the market posts gains during this period 78% of the time, compared to an average 54% for all the other weeks of the year.   

Those are truly impressive numbers that do suggest that something’s going on – and it does appear to have something to do with Christmas. Hulbert goes on to cite a New Zealand study of seasonal economic trends that among other things tracks positive market growth during the holiday season. In the UK for example market gains consistently appear all the way back to 1835, right around the time Christmas became a public holiday. Interestingly, researchers also found a nearly mirror image of the trend when Christmas became a national holiday in the U.S. in 1870.  

Furthermore, report the Kiwi researchers, this year-end strength tends to be stronger in countries “where Christianity is strong and/or where people tend to celebrate Christmas.” 

Personally, I believe that regardless of one’s religion or holiday traditions we would all do well to simply take a slice of good news pie when and where we find it. And this trend really shouldn’t be all that surprising. After all, we know that stock markets are largely a product of mass psychology; ergo it’s probably not too surprising that markets improve when society is celebrating a few days of peace on earth and goodwill toward others. Plus, no doubt, all that holiday spending we all do in the form of gift giving, holiday meals and travel spike the seasonal macro-economic punch bowl. 

As for this year, maybe, just maybe with the recent good news on the housing construction front in the mix, we’re starting to see the crack in the moldy drapes of the doldrums. But alas, that might just be my optimistic naiveté showing through. After all, things have been pretty darn bad for quite a while now and it seems that each and every time we get some good news it’s almost instantly followed by bad. 

Still, when considering what appears to be a measurable up-tick during the holidays, perhaps a bit of seasonal good cheer might be in order after all. Even more to the point, beyond all our palavering about economics, politics and such, perhaps when things are toughest, that’s when we should be raising our glasses a little bit higher and hugging our loved just a little bit longer. 

To one and all, here’s wishing you the merriest of Christmases, happiest of holidays and most prosperous of New Years. 

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