Every year there is talk about whether or not we are going to have a Santa Claus rally, and like many other phenomenon in the world of investing we can speculate about the possibilities until we’re blue in the face. However, we won’t actually know if there is going to be a rally until after it’s happened.
What is a Santa Claus or Christmas Rally?
A Santa Claus rally is the phenomenon of the stock market rallying in the week between Christmas and New Year (this of course doesn’t always happen).
Why does it Happen?
There is no single reason behind the Christmas rally but there are many possible explanations that have been suggested:
1. People investing their Christmas bonuses
2. General happiness of fund managers and investors due to the festive season.
3. Investors erroneously equating increased sales over the Christmas period to increased future share prices.
4. Money managers pilling money back into the market so that they don’t have to explain why they ended the year with such a high cash percentage when there was no pullback in the market.
5. People investing in the market in anticipation of a Santa Claus rally.
Personally, I pay no attention to Santa Claus rallies, and spend none of my time trying to predict them however, it’s impossible to ignore it altogether as the financial media seem to love talking about it which forces everyone to at least give it a passing thought.