As the year draws to a close, you’ll likely hear market commentators talking about whether investors should expect a “Santa Claus rally” in the stock market. But what exactly is a Sinterklaas gathering and what is the origin of the expression?
Here’s what investors need to know about a Sinterklaas rally in the stock market.
What is a Sinterklaas rally?
A Santa Claus rally is the tendency of the S&P 500 index to rise during the last five trading days of December and the first two trading days of January. The term was first used in the 1970s in the Stock Trader’s Almanac.
Today, market commentators may point to a Santa Claus rally when the stock market rises during the month of December, especially around the Christmas holidays.
Since 1950, the S&P 500 has risen an average of 1.3 percent during the last five trading days of December and the first two of January, according to the Stock Trader’s Almanac. The Santa Claus rally has occurred in 59 years since 1950, including 2023-2023 when the S&P 500 rose 0.8 percent over the seven trading days.
What causes a Sinterklaas gathering?
The precise cause for a Santa Claus rally is difficult to identify as different factors influence the markets from year to year. Some of the reasons cited for a year-end rally include general optimism around the holidays, people investing holiday bonuses and greater influence from individual investors.
What a Sinterklaas rally means for investors
Long-term investors, such as those saving for retirement, can generally ignore whether or not the stock market is having a Santa Claus rally. Market performance over seven trading days is barely a peep over the course of an investing lifetime, so trying to react to a potential rally is usually a mistake.
However, short-term traders could take more action in hopes of positioning themselves for a rally. They can buy stocks or stock funds before the end of the year and try to sell them once a rally has occurred.
Some market observers may also make predictions based on whether or not a Santa Claus rally will occur. For example, the seven-day trading period saw declines in 2000 and 2008. The technology bubble burst in early 2000 and 2008 was one of the worst years for the stock market in decades, as the economy entered a recession amid subprime mortgages. crisis.
In short
A Santa Claus rally in the stock market refers to the S&P 500’s tendency to rise during the last five trading days of December and the first two days of January of the new year. According to the Stock Trader’s Almanac, a Santa Claus rally has taken place 59 times since 1950. Some market commentators may casually refer to a Sinterklaas rally at some point in December.
