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Santa Claus's rally: As New Year's holidays affect stock market

The behavior of investors in stock market is influenced by a set of factors — economic and political news, progress or failures of the specific companies, and even the season is simple. For example, many participants of the market believe that during the period preceding New Year's holidays on exchange platforms growth is far more often observed. This phenomenon received the name "Santa Claus's Rally", and today we will consider such phenomena in more detail.

Seasonal trends


Great number of researchers focused attention on existence of certain patterns in behavior of the markets in certain seasons for many years. At the same time it is necessary to understand that because of above-mentioned influence on moods of investors of a set of factors, within specific year the situation in the markets can sometimes be contrary to the existing trends.

Besides, tendencies can change eventually. For example the diagram of historical data on growth of the Dow Jones index during the period from 1956 to 1982 is given below. It is quite accurately visible that those years at the end of spring, in the summer and also an early autumn the market mainly fell.

Santa Claus's rally: As New Year's holidays affect stock market

However, if to look at the diagram during the period from 1983 to 2010 which was characterized by "a bull trend" (active growth) in the markets then it is visible that the behavior of an index in summer months became better. However even in this situation some patterns of seasonality are saved — for example, weakness of the market in autumn months even amplified a little.

Santa Claus's rally: As New Year's holidays affect stock market

Also also the tendency to growth of the market in December, especially before Christmas and New Year's holidays remains. And, this trend is traced not only for the Dow Jones index. For example, here the diagram on growth of the S&P; index; 500 during the period from 2001 to 2010:

Santa Claus's rally: As New Year's holidays affect stock market

Image: squirrelers.com

April and December here — the most successful months which are characterized by growth of an index. If to look at a situation in wider time frames, then the picture, though changes for other months, directly for April and December remains to the same:

Santa Claus's rally: As New Year's holidays affect stock market

Image: squirrelers.com

Historically it developed so that December appears best month for the American stock market. Since 1950 the S&P; index; 500 dews in 75% with average increase by 1,7%:

Santa Claus's rally: As New Year's holidays affect stock market

Also historically December is good time for the English stock market. Such New Year's Eve growth of share indexes received the name "Santa Claus's rally" among the western players of the exchange market.

Growth reason in December


The accurate explanation of a phenomenon of rally of Santa Claus does not exist. For example, in conversation with the British Express edition the senior analyst of the Hargreaves Lansdown company Lait Khalaf (Laith Khalaf) described this phenomenon so:

History of stock market say that Santa Claus really with a surprising regularity makes to investors gifts in December. Of course, investors seldom invest money only for one month, but December — good month to begin work, especially in such years as 2015 when the market already grows. However nobody can explain really a seasonality phenomenon so it is not necessary to be surprised if in specific December no festive miracles occur.

However experts select several reasons which can influence improvement of results of stock market:

  • The general high spirits of investors before holidays;
  • Investment by representatives of top management of the companies and middle class into events of the final annual bonuses received in December;
  • "Decoration of show-windows" from funds which take well looking shares to improve the reporting;
  • The psychological effect — a phenomenon of New Year's Eve rally is widely known therefore investors, in general, expect to see it every year.

You should not underestimate the fact of waiting of festive rally — on the eve of Christmas investors are inclined to see a positive in many news. For example, recent increase of a base rate from U.S. Fed urged on "Santa Claus's rally" and growth of share indexes. As a result, the falling S&P; index; 500 dews for several days in a row, and now analysts expect that it will finish year in "a green zone".

What else there are rally periods


Apparently from diagrams is higher, December — not the only month celebrated by the historical growth of a fondova an index. Near it there is an April — this month stock markets also usually grow that promoted emergence of the term "rally of an easter rabbit".

That all this means to investors


Actually — anything special. The periods of New Year's Eve or easter rally belong to area of legends of stock market which though indirectly influence behavior of its participants, in itself do not dictate succession of events. Under the influence of different factors the situation can go and counter with the existing long-term seasonal trends.

During the work in stock market it is always necessary to adhere to the selected strategy and "not to put some egg in one basket". In case of a lack of time on the analysis of a situation in the market it is possible to use also the help of consultants (ITinvest have such service). If not to trust in miracles and to work according to in advance drawn up plan, the probability of emergence of "New Year's gifts" will really increase.

This article is a translation of the original post at geektimes.ru/post/268328/
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