Christmas may have come and gone but if Monday’s stock market gains are any guide, Santa Claus may still be around planning to deliver more returns to investors.
From 1950 through 2019, the Standard & Poor’s 500 index has delivered higher returns over the last five trading days of the year and the first two days of the new year 77.9% of the time, according to LPL Research. In fact, these seven days are up an average of 1.33% over the period. It’s what investors call the Santa Claus rally, a term that was coined decades ago by Yale Hirsch in the Stock Trader’s Almanac.
Though Monday was only the start of the current seven-day window, the S&P 500 suggests Santa is coming through again this year—so far, at least. After 68 record closes this year through last Thursday, the index notched another record high on Monday, closing at 4,791.19—up 65.40 points, or 1.38%.
“Why are these seven days so strong?” wrote Ryan Detrick, chief market strategist for LPL Financial, in a blog post. “Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays—or the holiday spirit—the bottom line is that bulls tend to believe in Santa.”
Stocks have also gotten some end-of-the-year fuel from news that the fast-spreading omicron variant may not be as severe as prior variants of COVID-19. “Stocks staged an impressive rebound last week and the S&P 500 hit a new all-time high thanks to positive headlines surrounding Omicron, and that improved clarity has set up a potential ‘Santa Rally’ into year-end,” said Tom Essaye, founder and president of Sevens Report Research, in a commentary.
So, what’s at stake at this point? “With one week left in the year, the S&P 500 sits at an all-time high, up over 27.5% year to date,” Bob Carey, chief market strategist with First Trust, said in a commentary. “With a perfect setup for a ‘Santa Rally,’ the market index could return over 30% in 2021 if all goes well in the last five trading days of the year.”
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