The 'santa Claus Rally' Is in Trouble, Does This Suggest a Grim Outlook in 2024?

As defined by the Stock Trader’s Almanac, the “Santa Claus rally” refers to the S&P 500’s tendency to rise during the last five trading days of a calendar year and the first two trading sessions of the new year.

Since 1950, the Santa rally has boosted the S&P 500 by an average of 1.3% over the seven trading-day range. The benchmark closed higher 78% of the Santa Claus trading window in the past 75 years, and gained during that time for the past seven years, according to Dow Jones Market Data.

If these 7 days are higher, it typically bodes well for the full year. In fact, since 1950, when we have a positive SCR, the S&P 500 gains an average of 10.2% the following year and is higher 72.4% of the time. When Santa doesn’t come to town, those numbers fall to just 5% and 66.7%, respectively.

Notice how a positive return during the SCR period has tended to forecast solid yearly gains.Last year was a great example, with a positive 0.8% return culminating in a staggering 23.6% rally in the S&P 500. However,no indicator is perfect, the SCR failed to predict -19.4% return in 2022, meanwhile, an instance when Santa fails to show doesn’t necessarily mean that there will be a poor market performance in the new year, such as 2016.

Don’t get too attached to indicators. Tom McClellan, also a sharp market watcher, noted that in years when the Santa Claus rally period is down, the market has been down only 40% of the time in the calendar year that followed. That means the market is up 60% of the time after the Santa Claus rally period is down, only mildly worse than the roughly 75% of the time the market rises year over year.