Heading into 2023’s final week of trading, traders and investors are likely excited about an official Santa Claus Rally.
That’s particularly the case this year, which saw the S&P 500 Index rally a whopping 23% since 2022 ended – a positive change from the 27.54% the stock market fell in 2022.
So, what exactly is a Santa Claus Rally, and how likely is it to occur?
What Is A Santa Claus Rally
The phenomenon, given its label by analyst and creator of the Stock Trader’s Almanac Yale Hirsch, generally takes place during the last week of December into the first few days of January. In some years, the rally has taken place over an extended period, beginning Dec. 14 and lasting over two weeks.
Historically, during a Santa Claus Rally, the S&P 500 has risen an average of 1.3%, but it doesn’t happen every year so it isn’t 100% predictable.
Past Santa Rallies
Between Dec. 20, 2021, and Jan. 4, 2022, a Santa Claus rally caused the S&P 500 to surge 4.98%.
The year prior, between Dec. 1, 2020 and Jan. 4, 2021, the ETF spiked 2.43%.
Between 1960 and 2020, Santa Claus rallies happened about 66.66% of the time
Since 1993, the occurrence took place 67% of the time, per Stock Trader’s Almanac.
What’s interesting, is that during bear markets and economic downturns, the rally can be stronger.
Bear and Bull Markets
A bear market is generally recognized when the S&P 500 declines more than 20% from the high of the previous bull market, whereas a bull market is recognized when the Index climbs over 20% from its bear market low. On Oct. 13, 2022, the S&P 500 reached a low of 3,491.58 and on May 18, 2023, the ETF closed at 4,202.20, up 20% from the October low, which indicated the bear market had ended.
Santa Claus Rallies In Bear Markets
A look back at the last three bear markets, beginning in 1990.
The three-month-long recession that occurred between July 1990 and October of that same year saw the S&P 500 plummet 20.14%. That year, traders weren’t gifted a Santa Rally, and the S&P 500 declined 6.27% between the weeks beginning Dec. 17 and Jan. 7.
The bear market that started in 2000, which was brought on by the collapse of the housing market, lasted a whopping 33…
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