Santa Claus rally hits markets in countries celebrating Christmas

santa claus rallies wall street

The Santa Claus rally is a year-end stock market surge occurring in countries where Christmas is a national holiday. Image: CC Vanessa Pike-Russell/Flickr

The Santa Claus rally in the stock market, if it has arrived on schedule, will begin Monday, Dec. 27. Historically the Santa Claus rally is the last five trading days of the year in countries that celebrate Christmas. The Dow Jones Industrial Average, already enjoying a strong December, hit a two-year high on Dec. 22.

Yes Virginia, there is a Santa Claus rally

The Santa Claus rally, also known as the “December Effect,” occurs during the final week of trading before the new year. A Santa Claus rally is generally reliable because of an increase in trading that must be executed before the end of the year for accounting and tax purposes. Santa Claus rallies are also attributed to traders anticipating the “January Effect,” an infusion of funds into the market that occurs at the start of the new year. Since the financial crisis hit in 2008 the January Effect has had diminished impact, but Santa Claus rallies in recent years have remained strong.

Evidence for the Santa Claus rally

The Santa Claus rally may have something to do with celebrating Christmas as a national holiday. A study by researchers at a New Zealand university found that year-end stock market surges became evident in Britain when Christmas became a national holiday in 1835. The same phenomenon started happening in the U.S when Christmas became officially observed in 1870. The study also found that year-end market surges are stronger in countries where Christianity is the dominant religion and Christmas is widely celebrated. The study, however, doesn’t answer the question of why celebrating Christmas would lead to a Santa Claus rally.

The Santa Claus rally 2010

The 2010 Santa Claus rally may have started early. The Dow hit a two-year high on Dec. 22 and gained for the 10th time in 11 sessions. As Christmas drew near, volume was light and many traders had already taken the week off. The market has showed optimism over signs that the global economy is improving. Reassuring statements from China about how the euro zone will be able to solve its debt problems have also helped. Plus, the general lack of economic news or corporate maneuvers during the holiday season have put normally jittery traders at ease.

Sources

MarketWatch

Investorplace.com

Wikipedia

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