What is a Santa Claus Rally?
A Santa Claus rally is a surge in the stock market that occurs between Christmas and New year's Day.
How Does a Santa Claus Rally Work?
Over time, the stock markets have rallied between December 25th and January 1st more often than they have not. There is no clear explanation for this phenomenon; however, it may result from the investment of holiday bonuses, investments made in advance of the closing of the fiscal quarter, or in anticipation of the rise in the markets usually experienced during January each year when business resumes and demands are higher.
A Santa Claus rally is not a sure thing. Indeed, changes in the S&P, Dow Jones, and NASDAQ over the past several years show mixed results during the period, especially during general downturns and bear market conditions.
Why Does a Santa Claus Rally Matter?
Trader's are unlikely to take this phenomenon into consideration when making decisions during this timeframe, but it is an interesting statistical observation of historically recurring market trend.