Santa Claus Rally: Do Stocks Always Run Up in December? (Statistics from the Past 20 Years Reveals Some Surprising Facts!)

Christmas in London; checkout these unorthodox white lights hanging across oxford street
Image Source: chadwicks.ie

Christmas has started early in many places around the world as retailers and malls deck out their retail space with Christmas music, deco, and the like. I especially like the decorations done in some of the major cities in the world, such as that in London. Of course, not only are stores enjoying the higher sales volume; the stock market and forex market tend to go into the same festive mood during this period.

However, is the mood really that buoyant during Christmas?

Christmas in the NYSE
Image Source: USA Today

“What about a Santa Claus Rally?”

Graphic shows average monthly change in Standard and Poor’sChart Source: Stock Trader’s Almanac 2010

In my previous blog post, I mentioned that the statistics for Nov to Feb rallies in past years is pretty positive. Starting from 1950 to 2009, the average November-January rally brings in 4.2% returns. It seems buying on any dip from now till about February next year would be a statistically sound trade.

So, being the statistics freak that I am, I decided to do some excel sheet magic and figure out what really goes on during the festive season.

WHAT HAS HAPPENED TO THE U.S STOCK MARKET IN THE PAST 5 YEARS?

This time, I decided to take a look at the statistics even more closely. For the past 5 years, this is what happened:

1Chart Source: The Amazing Microsoft Excel. And Yahoo finance for historical data. 🙂

Looks good, but if you bought on 1 Dec and sold on the first day of the next year, this would be what you get:

December Statistics:

2011: 4.64%

2012: 5.12%

2013: -3.52%

2014: -2.96%

2015: -4.98% — Total returns for 5 years = -1.71%!!!

For a grand total of… -1.71% returns over 5 years. Wonderful.  I decided to sum up the data in groups of 5 years, and see how the returns would be if we had this simple “buy in December, sell in January” strategy.

5-year “Buy in December, Sell in January” Statistics:

2011-2015: -1.71%

2006-2010: -14.06%

2001-2005: -1.30%

1996-2000: 10.46%

So it seems that the only time December was a profitable month was in 1996-2000. Let’s go into more stats and compare the number of winning Decembers versus the number of losing Decembers:

123

Using my trusty “countif” formula, I discovered this;

For the past 20 years of trading, 50% of Decembers were profitable for the S&P500 index, while 50% of Decembers were losing months.

10 out of 20 of the past 20 years were losing months.

Curiously enough, for crude oil, 9 of 10 of the past 10 Decembers ended in losses.

And of course, being the nerd/geek I am, I decided to test it out on other months. Suppose you bought in January, and closed in February:

January Statistics:

2011: 4.34%

2012: 1.28%

2013: 4.55%

2014: 5.62%

2015: -0.08% — Total returns for 5 years = +15.71%!!!

February Statistics:

2011: 2.77%

2012: 3.34%

2013: 0.39%

2014: -2.01%

2015: 6.18% — Total returns for 5 years = +10.66%!!!

March Statistics:

2011: -0.67%

2012: 1.92%

2013: 0.70%

2014: 0.98%

2015: 0.39% — Total returns for 5 years = +3.33%!!!

Now that we’ve seen that the “buy in January, sell in February” portfolio yielded the best results in the past 5 years, let’s check out the past twenty years.

5-year “Buy in January, Sell in February” Statistics:

2011-2015: +15.71%

2006-2010: -8.7%

2001-2005: +0.88%

1996-2000: -6.38%

Uh oh. Looks like the buy-in January phenomenon is quite a recent thing. It surely didn’t happen in the preceding 15 years. However, I’ve heard of the Santa Claus rally, so let’s see what happens if we only buy when Santa is around. What happens if you buy 1 week before christmas, and sell 1 week after christmas?

After some simple calculations, here are the results:

“Buy 1 week Before Christmas, Sell 1 week After Christmas” Statistics:

2015: -6.69%

2014: -2.01%

2013: 0.16%

2012: 5.03%

2011: 2.66% – 5-year performance: -0.85%!!!

I understand that the Santa Claus rally graphic at the top showed that over a 30-year period, buying in December and waiting until February seems like a prudent strategy. But the truth is most people don’t have 30 years to wait! I would rather go for something far more consistent and which takes a shorter time to see results.

In summary, this is what I’ve discovered from spending 10 minutes getting data, plucking in the values into Excel, and doing some simple calculations:

“The Santa Claus rally brought -0.85% over the past 5 years, and no considerable advantage is found in the months around Christmas.”

 

WHERE DO WE GO FROM HERE?

Let me know if there are any interesting phenomenon you would like me to research. The Santa Claus rally is a nice piece of information to know, but it clearly does not provide a trading edge. If it did, the entire market would trade it, and the edge would disappear.

I’ve shown you the statistical performance of this phenomenon, and I hope you’ve gained some useful knowledge. Some websites purport to ‘stock-pick’ over this holiday season, but I don’t see how the statistics could lie.

Cheers!

 

RESEARCH SOURCES & REFERENCES

https://www.zacks.com/stock/news/240876/5-best-stocks-to-buy-on-santa-claus-rally
http://www.investopedia.com/financial-edge/1211/is-the-santa-claus-rally-for-real.aspx
http://www.chartoasis.com/does-santa-claus-rally-occur.html
http://www.wikinvest.com/wiki/Santa_Claus_Rally
http://www.cnbc.com/2014/12/22/the-santa-claus-rally-vs-other-trader-lore.html
http://www.chadwicks.ie/blog/wp-content/uploads/2014/12/London.jpg

Would you like to learn more about trading & investing?

Check out our comprehensive free learning resources and join our daily market analysis & discussion on our various communities.

About the author

Spencer Li is a trader, investor and entrepreneur who currently manages his own portfolio of stocks, REITs, currencies, cryptocurrencies, properties, and businesses. As a former professional in private equity and proprietary funds, he has over 10 years of market experience, and has been featured on more than 20 occasions in the media. As an international speaker and avid globetrotter, he has travelled to over 50 countries to spread his knowledge.

 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply