If Santa Claus should fail to call, Bears may come to Broad and Wall
By: David I. Templeton, CFA, Principal & Chief Investment Officer
Author: David I. Templeton, CFA, Principal and Portfolio Manager
It is that time of year that the old maxim stated in the title receives a great deal of focus and attention. The title references the Santa Claus Rally (SCR) which pertains to the S&P 500 Index's performance in the last five trading days of the year and the first two days in the following new year. For this trading year, the first day of the Santa Claus Rally period is December 24 and runs through January 5. The Santa Claus indicator was first defined in the Stock Trader's Almanac by Yale Hirsch in the early 1970's.
Since 1950 there have been sixteen negative returning Santa Claus Rally periods. As the below chart shows, 2023 and 2024 were negative SCR periods, but there has not been a time where three consecutive negative periods occurred.
The interest in the SCR is due to the market's tendency to fall into a bear market if the SCR period is negative. As noted at the Almanac Trader's blog and the below table, "Down SCRs were followed by flat years in 1994, 2005 and 2015, two nasty bear markets in 2000 and 2008, a mild bear that ended in February 2016 and the Tariff Tantrum early in 2025."
Ending a year on a positive note and having the favorable return carry over into the entire month of January, the January Effect, has historically been a precursor to a favorable market for the entire new year.
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