Santa Claus Rally – Is Santa real?
” ♪ It’s the most wonderful time of the year. ♫”
The cool winds are blowing, and the Christmas decorations reflect the joyous holiday spirit. Cookie-baking children can be seen from people’s windows, the smell of chestnuts is in the air, Christmas carols echo in the air, and the New Year is around the corner. It’s December.
This euphoric mood isn’t lost on the stock markets either. Stock markets usually rise during the festive season. This phenomenon is known as the Santa Claus Rally. But is that really so? Is Christmas the best time of the year for investors? Find out in this blog article.
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What is the Santa Claus Rally?
The Santa Claus Rally describes the seasonal upswing in stock prices in December, specifically between the last five trading days of the year and January’s first two trading days. The phenomenon is observed in markets around the world.
Holly Jolly data
How accurate is the Santa Claus rally?
A historical look at the data shows that the period in question is the most profitable. On average, stock markets outperformed any regular 7-day period six times during this period.
Looking at the past of various indices, we can see that Santa has been reliable. For example, the Santa rally has given the S&P 500 an average gain of 1.3% each year since 1950. Likewise, the Dow Jones has risen by an average of 1.7% since 1986.
The FTSE 100 (Financial Times Stock Exchange Index), the essential British stock index, is also known to experience the Christmas rally regularly. In fact, the average monthly return of the FTSE 100 index in December is 2.02% – higher than the average of any other month except April.
Even last year, after the Covid 19 pandemic, the FTSE 100 rose 2.01% in the six-day trading period between Dec. 24 and Jan. 5.
But beware, there is no guarantee that this pattern will repeat itself this year.
Why does the Santa Claus rally take place?
There are several explanations for the Santa Claus phenomenon on the stock market. These range from a general feeling of optimism and happiness to the investment of Christmas money to the Holiday Spirit, Christmas shopping, and a self-fulfilling prophecy.
What precisely causes the seasonal rise in the stock market – we still do not know.
Santa Claus Rally – your chance to get rich quickly?
So stock prices tend to go up in December, but do they always go up? Are there exceptions? Of course, there are! Christmas is not always a good time for investors! For example, in December 2018, stock markets dropped tremendously. It was one of the worst months for markets in a long time – global stocks in December 2018 fell an astonishing 7.2%.
The Santa Claus rally is something that happens from time to time. As an investor, it’s important to remember that sometimes markets are illogical and unpredictable. To really make money from them, you need to pick the right stocks at the right time and sell them again – this is not the investment philosophy of UnitPlus, for example. In addition, it requires a good portion of luck.
Dangers of the Santa Claus Rally
The most significant danger of the Santa Claus Rally is that it gives investors a false sense of security in December and entices them to buy without really researching or analyzing market data. This could even have serious consequences! If suddenly everyone buys stocks like crazy during the Christmas season without any detailed justification, it could lead to a bubble that could burst at any time.
The Santa Claus Rally – too good to be true.
Our advice for December: stay cozy and put your feet up
The Santa Claus Rally is an interesting seasonal trend in the stock market but not a reason to invest recklessly. Instead, if you enjoy your December with a mulled wine and putting your feet up by the fireplace in Rudolph socks, without letting yourself be influenced by the ups and downs of the markets, you are assured of higher profits in the long run.