What is the Santa Claus rally?
The Santa Claus rally is when there is a rise in the price of stocks during the last five trading days in December and the first two trading days in January.
Where have you heard about the Santa Claus rally?
It might have been mentioned on the news during December and January, or your financial advisor may have highlighted this theory in relation to the performance of your investments.
What you need to know about the Santa Claus rally.
Some investors consider the Santa Claus rally to occur because stocks are being bought in advance of a hopeful price rise in the new year. There are other ideas as to why this phenomenon happens:
- Tax considerations, as some trades must be completed by the end of the year
- Festive happiness in the trading centres, so investors are more optimistic
- People investing Christmas bonuses
- The increase in more negative (bearish) people being on holidays during this time
This rally in prices was first noted by Yale Hirsch in his 1972 Stock Traders Almanac.
Some traders believe that if there is not a Santa Claus rally then the following trading year is more likely to be bearish in its performance.