Breaking down the Santa Claus Rally

  • Stocks have often rallied in the days before and after Christmas
  • Certain days have been more bullish than others
  • Do bulls cash in their chips before the year ends?

Have volatility, will travel” showed that, historically, most of December’s stock-market returns have often been generated in two bursts, one near the beginning of the month and another toward the end.

We’re now down to the final eight trading days of the year, which includes that second potentially bullish phase that is often (when the market does, in fact, push higher) referred to as the “Santa Claus Rally.”

Bottom line, since 1990 the S&P 500 (SPX) has a median net return of 0.71% over the eight-day period spanning three trading days before Christmas to five trading days after it.1 That’s bigger than the SPX’s median return for all eight-day periods (0.51%), but not necessarily a difference that’s going to make or break anyone’s trading year.

Chart 1: S&P 500 median returns around Christmas, 1990–2020. Some days more bullish than others.

Source: Power E*TRADE (For illustrative purposes. Not a recommendation.)

But these eight days have exhibited some interesting tendencies. The chart shows the median daily return for each (top), along with how often it closed higher (bottom). A couple of takeaways:

1. The second day before the Christmas holiday (tomorrow) and the day after it (next Monday) had the strongest combination of return size (both above 0.2%) and likelihood of closing higher (both above 70%). The third day before Christmas (today) had the highest median return (0.36%), but it didn’t close higher as often as the other two days. (To put things in perspective, the SPX’s average daily return is 0.04%, and the odds of a given day closing higher are 54%.)

2. The fourth and fifth days after Christmas were the weakest performers—both had negative median returns and both closed higher less than half of the time. Also, although this year the fifth trading day after Christmas will be December 31, it’s usually the first trading day of January—which means over the past 31 years, the last day of the old year and the first day of the new one have both closed down more often than up.

Every year is different, of course, but traders gauging the likelihood of a Santa Claus Rally may want to take into account the tendencies the market has exhibited in years past.

Today’s numbers include (all times ET): Q3 current account (8:30 a.m.).

Today’s earnings include: Rite Aid (RAD), General Mills (GIS), FactSet Research (FDS).


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1 All statistics reflect S&P 500 (SPX) daily closing prices, December 1960 through December 2020. “Christmas” refers to the day the markets close in observance of the holiday, not December 25. Supporting document available upon request.

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