Is the "Santa Claus rally" a myth?
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Every since I have been in the workforce I kept hearing about the famous "Santa Claus" rally where it seemed that the stockmarket rose around the same time that the jolly red giant was in town. But I never knew if this was really a myth or actually had some substance to it. So I decided this year to have a look at the numbers and found some very interesting statistics.
I had a look at the statistics of how well the stock market does for each day of the year. I looked at all of the Dow Jones closings going back to the beginning of the index in 1896. I then had a look for the best period of growth.
And yes the Santa Claus rally really does exist. The best time of the year is a 17-day stretch from December 21 to January 7. Over the last 111 years, the Dow has gained an average of 3.39% during that 17-day period. To put that in some perspective, the Dow’s annual gain is 8.32%. This means that more than 40% of the Dow’s yearly gain has come during this brief stretch which is less than 1/20 of the entire year.
A surge in the price of stocks that often occurs in the week between Christmas and New Year's. There are numerous explanations for this phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week.
With most of the bad news already out in the stockmarket earlier this year and history suggesting that it will bounce back next year, should now be the time to contact us about investing into the sharemarket again?
Don't miss out on Santa Claus and his presents. Contact us today.
Ho! ho! ho!
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About Jon McArthur
Jon is a Chartered Accountant with 20+ years experience in tax and accounting services, as well as holding Chief Financial Officer positions for a number of Australian-listed companies.
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