Brendan McDermid | Reuters
Almost as predictable as the big jolly man himself, the Santa Claus rally in the stock market comes around in late December.
That is, the markets tend to rise over a stretch of time right before and after the calendar flips to the new year. Specifically, the rally involves the last five trading sessions of the year and the first two of the new year, according to the Stock Trader’s Almanac, which coined the term decades ago.
And so far, this year is no different.
“Why are these seven days so strong?” said LPL Financial Chief Market Strategist Ryan Detrick in a research note. “Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books — or the holiday spirit — the bottom line is that bulls tend to believe in Santa.”
This year, the seven-day stretch began Monday, with the rally off to a good start.
The S&P 500 gained nearly 1.4% to finish the day at a fresh high of 4,791.19 — it’s 69th record close of the year. The Dow Jones Industrial Average rose about 1% to 36,302.38, and the Nasdaq Composite closed at 15,871.26, up 1.4% for the day.
While there’s no guarantee that the market will end up posting a gain during the full rally period, the S&P 500 has been positive nearly 79% of the time during those days since 1928, with an average gain of 1.7%, a Bank of America analysis shows.
In the last 10 years, there’s been a decline just twice in the S&P 500 during the Santa Claus rally period, according to CNBC’s Robert Hum. In the eight years that the index rose, the gain averaged 1%.
Already this year, the major indexes have posted outsized returns. The S&P 500 is up 27.6%; the Dow, 18.6%; and the Nasdaq, 23.1%. Over time, the average annual return for the stock market is about 10%.