• Market Strategist examines year-end rally historically
• Good chances of price gains after the Christmas holidays
• Weak year-to-date development could amplify rally
The Santa Claus rally is a calendar effect on the US stock market that takes place at the end of the year on the US stock exchanges and is associated with a stock market rally. This supposed stock market phenomenon is also known in Germany, but here under the name “year end rally”, which implies that the stock market upswing is not limited to the time before or directly after the Christmas holidays.
December rally just a myth?
Whatever name the calendar effect is called: Every year, investors around the world hope that the end of the year will bring a conciliatory conclusion for the stock exchange portfolios.
If market strategist Mark Hulbert has his way, it is likely that investors will actually be rewarded with price premiums for a mixed stock market year in 2022. The expert looked back at MarketWatch on the history of the leading US index Dow Jones and its development in the period between Thanksgiving and its highs in December. His result: Since its introduction in 1896, the stock exchange barometer has increased by an average of 3.35 percent over this period. This is not particularly impressive, according to Hulbert. Other months, examined in a similar manner – that is, from the fourth Tuesday of the month (equivalent to Thanksgiving) to the following month’s peak, could have shown greater average growth.
Mark Hulbert believes in year-end rally
But despite this less than optimistic historical view, Hulbert sees a good chance of a year-end rally in 2022. In his view, the period of several days beginning after Christmas shows unusual strength. Specifically, he talks about the period between the first trading session after Christmas and the second trading session of the new year. The Dow has risen 77 percent of all years during this period – by an average of 1.5 percent. If you examine this period of time in all other periods of the same length since the index was introduced, you only get a price increase in 56 percent of the cases – and this amounts to an average of only 0.2 percent, Hulbert continues.
Weak year for stocks – strong year-end rally
In addition, the market strategist notes a connection between a weak year for stocks and the strength of the year-end rally. If prices have fallen since the beginning of the year, the Dow was able to gain an average of 2.2 percent between Christmas and the second trading day in January. But if the stock market has been up since the start of the year, according to his calculations, the increase was only 1.2 percent on average.
Against this background, investors should actually be able to expect a conciliatory end to the year, but they will have to wait until after the Christmas holidays. The Dow Jones has already lost 6.42 percent this year – the best conditions for a recovery effect to occur after the holidays.
Editorial office finanzen.net
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