In the end, the S&P 500 Index lost 9.2% in the historically bullish month of December, for the worst-performing December since 1931. From continued trade worries to algorithmic and high frequency trading, from the global economic slowdown to the Federal Reserve (Fed) being too hawkish for the markets’ liking, pick a reason and Santa didn’t visit in 2018.
Or did he? The Santa Claus Rally everyone talks about isn’t really for the entire month of December–it’s only the last five trading days of the year and the first two trading days of the following year (December 24, 26, 27, 28, and 31 and January 2 and 3). This is also known as the “December Effect,” first noted by Yale Hirsh in his Stock Trader’s Almanac in 1972.
With a day to go, the S&P 500 is up an impressive 3.9% during this historically bullish seven-day period. Looking at all possible seven-day periods, this is actually the seven-day stretch most likely to be positive. Believe in Santa yet?
“In the rare instance that the market gets a lump of coal instead of a Santa Claus Rally, it usually means there could be weakness in January. In fact, the past five times Santa didn’t show, stocks dropped in January,” explained LPL Senior Market Strategist Ryan Detrick.
As the LPL Chart of the Day shows, over the past 20 years, five have received coal and sure enough, January closed lower every single time. With Santa showing up in 2018, could this be a sign of better times ahead for the bulls?
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