GETTING CLOSER TO SANTA RALLY?

One of the most famous market phenomenon is the Santa Claus Rally at the end of the year. Obviously we don’t know this year will come or not since we don’t have a crystal ball, but we can find some data from the past to understand better this phenomenon. Namely this pattern means the last trading 5 days of the year and the first 2 days of the new one. Typically the markets are trending in those days, and mostly they are bullish.

According to the Trader’s Almanachs since 1969 the Santa Claus Rally occurred 34 times out of 44 years. So the winning ratio is pretty good, it is over 72%. The average cumulative return is around 1.6%, but there is always one day at least of decline. If we look back in longer period since 1896 the Dow Jones gained in 77% of the years with around 1.7%.

What is the underlying lift-power of Santa Claus Rally? To be honest I don’t have a faintest idea, my bet is more mass psychology than fundamentals, might be the year-end tax-related portfolio adjustments or optimism during the holiday season.

The BFM Assets Team.