Mark Hulbert: ‘Santa Claus rally’ for stocks is likely this year — but you won’t be opening presents until after Christmas

by | Nov 25, 2022 | Stock Market

The many advisers forecasting a “Santa Claus rally” for U.S. stocks are too eager. That’s because the only year-end seasonal strength worthy of being called a Santa Claus rally doesn’t begin until after Christmas. The Thanksgiving-until-Christmas period does not itself exhibit any statistically significant rally potential.

To be sure, none of the advisers forecasting a Santa Claus rally after Thanksgiving bother to define exactly when it is supposed to begin and end. So refuting it is tricky. To do so, I measured the Dow Jones Industrial Average’s
DJIA,
+0.45%
gain from Thanksgiving to its highest close in December. Though you would need perfect clairvoyance in order to realize this gain, it represents the theoretical maximum for such a rally. Since 1896, when the Dow was created, its average gain when measured this way is 3.35%. That may appear impressive — the equivalent of more than 1,100 Dow points currently —but isn’t really. When other months’ rally potentials are measured in a similar way, many exceed that of the post-Thanksgiving period. This is illustrated in the chart below. To construct it, I calculated for each month the average rally from its fourth Thursday (the equivalent of Thanksgiving) to the subsequent month’s high. As you can see, seven other months have a larger rally potential than for the period that begins after Thanksgiving.

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