On Christmas Eve, Santa goes through hell and high water to deliver gifts to the children of the world and then heads back to the North Pole to prepare for the next year. What the kids don’t know is that Santa often brings the magic of his Holiday cheer to the stock markets in what has become known as the Santa Claus Rally.
For about a month from December to January, the Nasdaq and S&P 500 have shown growth 32 times from 1971 to 2015, but the Nasdaq outperforms the S&P 500 by 2.1 per cent.
Santa is often extra generous to Canadians and the TSX index from 1971 to 2015 has produced an average of 2.7 per cent in gains and has been positive 82 per cent of the time. In other words, it’s a good time to invest.
The reasons for the year end surge has less to do with Santa and more to do with commodity prices bottoming out to later be scooped up for bargain prices. Also, smaller companies tend to move in on stocks sold for tax loss purposes.
Other reasons are more in keeping with the spirit of the season. Investors feel more upbeat, investment reports highlight prospects for the next year, encouraging economic news and consumer holiday spending all influence this seasonal market swing.
This year Trump cleared the snow for Santa’s sleigh by boosting the markets early in November after his election victory. Equity markets rose and volatility subsided and the trend continues deep into December. As of Dec 22, the TSX was up 1.9 per cent, the S&P 500 3.4 per cent and the Nasdaq, true to form, is up by 4.8 per cent.
The Santa Rally traditionally continues until the third week of January, when the chocolates eaten, the children bore of their new toys and Santa heads back to the North Pole to contemplate if he’ll show up to the markets next year.
Neville Joanes is the Portfolio Manager & CCO at WealthBar. Neville oversees portfolio management and investment operations, ensuring that clients’ portfolios meet their objectives. He is dedicated to his goal of always delivering the best investment management to our clients. Neville is also a CFA® charter holder.