The “Santa Rally” performance in the last 32 years has been mostly due to three outliers, in 1997, 2008, and 2018. Apart from those three outliers, the performance has been essentially stagnant. The long-term expectation is probably zero.
In this article, we define the Santa Claus Rally as a calendar effect anomaly in the stock market, where stock prices typically increase during the last week of December and the first two trading days of January.
Below is a chart of the Santa Rally performance in the S&P 500 index from 1992 to 2023 (including the first two days of 2024).
There are three outliers: 1997, 2008, and 2018. The last two were down years for the stock market. Below is the performance in table format.
The average performance of the Santa Rally in the last 32 years has been 0.67%. However, in the last 11 and 5 years, the performance has dropped to 0.37% and 0.32%, respectively.
Note that the average monthly performance of the S&P 500 since 1945 has been 0.72%. On average, the Santa Rally has not outperformed the monthly performance, and has underperformed in the last 5 and 11 years.
Furthermore, if we remove the outliers in 1997, 2008, and 2018 by setting them to 0%, the average performance has been 0.18%.
Probably, in the limit of sufficient samples, the expectation from the Santa Rally converges close to 0% when adjusted by the monthly return performance. There’s no need to search for the causes of this calendar anomaly, as we believe there are none. This is simply a result of the limited sample size.
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Charting and backtesting program: Amibroker. Data provider: Norgate Data
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