12/18/2015
The Santa Claus Effect
As I write this, Monday night, Dec. 14, the month is not off to a great start in terms of Wall Street and market returns, even though December is traditionally a strong month. But this year there are lots of issues to navigate, including the terror threat and the Federal Reserve’s probable actions on the rate front this coming Wednesday, Dec. 16. There is no doubt there is a general sense of unease across the land, as well as the Street.
That said, you could easily still see a powerful little rally end of the month as traditionally the last five trading days of the year and the first two of the new one are bullish.
Since 1950, the S&P 500 has returned 1.5% on average during these seven days, according to the Stock Trader’s Almanac.
But if this period is negative, it often presages major downturns or outright bear markets, such as the 4.0% seven-day retreat in 1999 and the first days of 2000. On Jan. 14, 2000, the Dow started its 33-month 37.8% slide to the October 2002 midterm election year bottom. Nasdaq cracked eight weeks later, March 10, 2000, and then plunged 37.3% in 10 weeks, eventually falling 77.9% by Oct. 2002.
A 2.5% seven-day decline in 2007 was the result of the beginning of a crack in subprime mortgages and derivatives that led to the crash and financial crisis of 2008, when the S&P declined 38.5% that year, and another 20% to start ’09 before bottoming.
Last year the S&P declined about 3% over the seven days and 2015 hasn’t exactly been a rousing year on Wall Street.
Bottom line, the “Santa Claus rally” may bear watching this time, though in most recent years, Santa has been calling earlier and earlier.
Source: “2015 Stock Trader’s Almanac,” edited by Jeffrey A. Hirsch and Yale Hirsch; StocksandNews.com database.
Merry Christmas and Happy New Year. I’ll be back with yearend market returns as soon as they are in. [Around Jan. 3.]
Brian Trumbore
