A Santa rally in the stock market could bring new highs to the major averages next week.
Santa’s Gathering is a seven-day shopping window that begins this year on December 22 and ends on January 3.
Historically, stocks were up 79% of the time during this trading window, with an average gain of more than 1%.
The end-of-year rally that catapulted the Dow Jones Industrial Average And Nasdaq100 has records at the start of the week is likely to extend into next week.
This is because the stock market has a strong upward trend during the last five trading days of the year and the first two trading days of the new year, commonly known as the Santa Claus rally.
The phenomenon was discovered in 1972 by Yale Hirsch, creator of the Stock Trader’s Almanac.. This year, the Santa Claus shopping window begins on December 22 and ends on January 3.
According to historical data dating back to 1950, the S&P500 posted an average return of 1.3% and is positive 79% of the time during the Santa trading window, according to data from Ryan Detrick of the Carson Group.
This period marks the strongest seven-day period in which stocks are consistently higher and helps December become the best performing month of the year for the stock market, according to Detrick.
And using stock market data going back to 1928, the average gain during the Santa trading window is even stronger, at 1.6%, according to Bank of America data. If this type of gain materializes this year, it would propel the S&P 500 to new records.
“The Santa rally is real,” Bank of America technical analyst Stephen Suttmeier said in a note earlier this month. Suttmeier added that the upcoming trading window is also bullish in year three, heading into year four of the presidential cycle.
“This period from the end of December of the third year of the presidential cycle to the fourth year of January is also bullish with the S&P 500 up 70% of the time on an average return of 0.90%,” Suttmeier said.
But if a Santa rally doesn’t materialize over the next seven trading days, it could serve as a wake-up call to investors that the year ahead could get off to a weak start for stocks.
Over the past 30 years, stocks have posted negative returns five times during the Santa rally period, with January being lower for stocks each time.
“Notably, there was no Santa Claus rally in 2000 and 2008, not the best time for investors, and potentially major warnings that something was wrong. Finally, the entire year was negative in 1994 and 2015 after no Santa gatherings. ),” Detrick said.
As a result, Hirsch coined the phrase: “If Santa fails to call, the bears might come to Broad and Wall.” »
The New York Stock Exchange is located at the corner of Broad and Wall streets.
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