Even the stock market celebrates Christmas – most of the time

There is a phenomenon in stock markets known as the Santa Claus rally.

Robby P.

Some even call it the Christmas rally.

Essentially, what this refers to is a period where stock prices tend to “run¨ during the Christmas period.

To this day, nobody can say with any certainty why this phenomenon exists and experts have come with many theories as to why stocks tend to run over Christmas.

The period of the share price surge is also a little vague but December ranks as one of the best months for stock in the US and even here on the JSE.

This cheery period for stocks is that little gap between Christmas and the New Year, and this has been the case over decades of historical data of the performance of stocks in the month of December.

As I mentioned, nobody knows for sure why this happens and many analysts can only speculate as why we see this buoyancy in share prices during the Christmas period.

According to historical data going back to 1896, the Dow Jones Industrial Average has gained an average of 1,7 per cent during this seven-day trading period, rising 77 per cent of the time.

The period I’m talking about is the period between Christmas and the first two days of January.

It may just be as simple as “holiday cheer” that drives stocks higher but some interesting theories do exist as to why this happens (thirty four out of the last forty five holidays.)

Some speculate that year-end tax-related portfolio adjustments.

Others theorise that most ‘pessimists’ are on holiday and there are less people selling their stock.

Another theory is that people may be investing their Christmas bonuses for the upcoming year.

Interestingly, some pundits simply say that investors buy stocks in anticipation of a strong January (which is also a good month for markets) and this is known as the “January effect”.

Many traders believe that January sets the tone for the year, so if January is a strong month for markets then the end of the year will be strong and vice-versa.

Of course, a stock market rally is never guaranteed and nobody can see into the future, but as a betting man, I like the odds of the Santa Claus rally and I always try and trade within this period.

After all, history says that I have a 77 per cent chance of making money.

If you were ever going to get involved in trading stocks, history tells us that December is a good time.

Most people are on leave and some even get bonuses which they can use to get started.

There are less participants trading the market so you are less likely to be price squeezed by the sellers.

My point is, the odds of rising share prices going up is high and you could be lucky enough to catch the infamous “Santa Claus Rally”.

You may just make enough cash to cover what you had just spent on the children’s Christmas presents.

Don’t forget that I am here to help and you can always reach me through benonicitytimes@caxton.co.za if you need any advice or guidance.