As much as I want to take this week’s piece and dedicate it towards the brilliance that is the movie Christmas Vacation and why it should be declared as the greatest Christmas movie of all-time, I’ll spare you my opinions on cinema.
Maybe you’ve heard of the Santa Claus Rally, maybe you haven’t, but if you’re paying attention to the news at all for the rest of this month, you can bet it will be discussed at some point. This holiday week we’ll briefly discuss what this rally actually is and why there are certainly reasons to be cheery.
The Santa Claus Rally is the tendency for the equity market to rise the last five trading days in December and the first two trading days in January[1]. For context, that would include the trading days from December 24th – December 31st, 2020, then January 4th and 5th in 2021. This rally has been chalked up to a few different causes, including: the final opportunity to tax loss harvest and buy stocks that are priced more favorably at the end of the year, or make equity purchases in anticipation of what many people believe to be a favorable new year (an early entry point into the what is called the January effect). Ultimately there is no true or accurate understanding of what exactly causes the Santa Claus Rally, only that it exists in the media (of course it does) and history shows the S & P 500 does have a positive return in the last 5 trading days of December and the first two trading days of January, 79% of the time since 1950[2]. Santa Claus breeds optimism and cheer, and with 2020 coming to an end, I think we can all agree optimism is very welcome this season.
Will this year’s Santa Claus Rally happen? I am not 100% sure, nor am I claiming any certainty in market performance. However, I am able to point to three things the market may view through a positive lens.
- Vaccine!
The vaccine has been released and it is being distributed as I type[3]. Economically speaking, traders will continue to view this as a huge win as we head into the new year.
- Stimulus!
After months of back and forth, Congress reached a deal on a second round of stimulus to further combat the economic effects COVID-19 has wrought[4].
- New year!
My goodness, it is not going to be 2020 anymore!
Aren’t we all joyous and optimistic that we get to turn the calendar and see the digits 2 0 2 1 instead?
There’s no telling what the markets will do today, tomorrow, next week, or next year, there’s only the understanding of your specific financial plan and the allocation that is paired along with it. Maybe Santa Claus will sprinkle some North Pole magic on the stock market this year, maybe not. Whatever he decides to do, you can be sure your team at BerganKDV will be ready. If you are interested in learning more about market trends, contact your trusted advisor or start here.
My most sincere happy holidays to everyone patient enough to have read this far. If you cannot travel or spend time with your loved ones this year, I hope you are able to squeeze every drop of joy out of whatever celebration you’re able to partake in. I appreciate you all very, very, much and wish you all the best in the new year.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.
[1] Retrieved on 20 December 2020 from: https://www.cnbc.com/2018/12/21/the-santa-claus-rally–no-ho-ho-ho–.html
[2] Retrieved on 20 December 2020 from: https://smartasset.com/investing/santa-claus-rally-2020
[3] Retrieved on 20 December 2020 from: https://www.nytimes.com/interactive/2020/us/covid-19-vaccine-doses.html
[4] Retrieved on 20 December 2020 from: https://www.barrons.com/articles/news-updates-stimulus-bill-vote-expected-soon-51608486546?refsec=coronavirus
