Ask Fear & Greed: What is a Santa rally?

Listener Ruth asks: A couple of times recently I've heard a Santa rally mentioned. Is this a formal thing? Is there a definition / criteria? Or is it just a trend?

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Episode Transcript

Speaker 1 (00:03):
Welcome to Ask Fear and Greed, where we take your
questions and do our best to answer them. I'm Michael Thompson,
and good afternoon, Sean Aylmer.

Speaker 2 (00:11):
Good afternoon, Michael. Sean.

Speaker 1 (00:13):
Questions can come in from anywhere and from anyone. They
can come in via our website Fearangreed dot com, dot au,
or LinkedIn or Instagram. This one's come from Facebook, and
it has come from Ruth on Facebook. And Ruth wants
to know, she says, a couple of times recently, I've
heard a Santa rally mentioned. Is this a formal thing?

(00:34):
Is there a definition or criteria for it to be
classed as a Santa rally? Or is it just a trend?
Maybe we start with the basics, Sean, what is the
Santa rally?

Speaker 2 (00:47):
Well, you sort of have to answer it by saying
it's a trend. There's nothing officially that's a Santa rally.
I had to go back and look. So in nineteen
seventy two, the Stock Traders Almanac by Yale Herb used
to talk about the phenomenon of like the sustained increase
in the stock market in the last week of the year.

(01:09):
So the last five trading days and the almanacurs I
talked about the first two trading days of the next year,
and that's kind of where it came because there is
no doubt that markets rally at the very end of
the year. In fact, historically the S and P five
hundred and the down Joy's industrial average and the negs
that composite have risen eighty percent of the time in

(01:32):
those final five days, So it is a real thing. Now.
Often people want their bottom line to look better at
the end of the year. There could be a lot
of trading to close our positions, I mean, sort of
reasons for it. But eight percent of the time there
is a rally in those five days. Now, the average

(01:52):
returns are about one point three one point four percent basically.

Speaker 1 (01:56):
Okay, So obviously there's if it's just a trend, there
are exception then, and one would expect that perhaps this
week Sean might be an exception to the rule where
all of a sudden you've got the FED coming in
and really dampening everybody's spirits.

Speaker 2 (02:11):
Yes, so we're not quite at the Santa Claus rally yet,
because it's the last five days literally of the year,
the last five trading days. What I think is kind
of interesting is that last year there's a rally right
at the last, like a pretty steep rally. I think
we're around seventy five hundred points, and we only got

(02:32):
to seventy six hundred points, so it rallied about one
hundred points in that last five days or so this year.
So this week, because of what the FED did, certainly
been sold off, so we can't. I mean often when
you hear commentators now, they talk about at Santa Rally,
and they're actually talking about the month of December. Officially,
it's only the last five days though, and certainly what's

(02:55):
happened in the past sort of forty eight hours as
they suggest, we won't have a Santa Rally for December.
We may not anyway, but really it is actually the
last five days that matter.

Speaker 1 (03:06):
So if it's the last five days of December, then
Sean arguably like it's it's typically then after Santa has
been So therefore I'm proposing that we rename the Santa
Rally to like the New Year's Baby Rally or whatever
they what do they call it, Baby New Year? I
don't know, whatever it is, whatever the character is associated

(03:27):
with the New Year. Name it after that, it's after
Santa like it's it's.

Speaker 2 (03:34):
To honest peak at the public holidays and stuff like that.
You're only normally there's a weekend in there, so maybe
two in sane it's about halfway through the rally, That's
how I put it.

Speaker 1 (03:45):
So it's a shared rally between shared baby.

Speaker 2 (03:48):
Yeah, yeah, yeah, yep, yep, yep yeah.

Speaker 1 (03:49):
All right, well, okay, so it is slightly misnamed. It
is not a fixed thing, it is not guaranteed, and
it is based essentially on the last five days of
the year typically, but it does it's now kind of
generally referring to the full month almost, yes, exactly right, Okay,
all right, well, I think Ruth's question has been answered.

Speaker 2 (04:10):
I think I did.

Speaker 1 (04:11):
I did my best to hijacket with a renaming after
a baby, but it was unsuccessful in that. So thank
you very much Sean for answering the question, and thank
you Ruth for asking it.

Speaker 2 (04:22):
Thank you Michael.

Speaker 1 (04:23):
If you have your own question that you would like
us to answer, then please send it on through via
the website Fearangreed dot com, tod au, or go to
LinkedIn or follow Fear and Greed on Instagram or send
it on through via Facebook as Ruth did. I'm Michael
Thompson and this is ask Fear and Greed