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The Santa Claus Rally, January Effect and the Stock Market


The Christmas rally, more commonly known as the Santa Claus rally, is a surge in shares trading that makes stock prices rise. It takes place in December, and generally peaks during the week or so after Christmas and before New Year’s Eve, although some may say it can extend into the beginning of the New Year. A popular method of trading during this time involves the use of CFD products. These products offer the potential to profit from falling and rising stock prices. CFDs can be used to hedge existing investments during this period or to react to market change.

According to websites like The Street, the Christmas rally can occur for a vast number of reasons, including considerations about taxes and the timing coinciding with the payment of Christmas and end-of- year bonuses. One of the most cited reasons for the Santa Claus rally is the January effect, which sees a new rise in stock prices at the beginning of the New Year. Taking that into consideration, it seems logical that investors would rush to the stock market in anticipation of the soaring of stock prices.

Yale Hirsch, the creator of the Stock Trader’s Almanac sees the Santa Claus rally as a real trend, marked by the above average chance of this being a positive period in shares trading, as well as an indicator for the year to come. He points out that the S&P 500 has gained on average 1.5% consistently in this period, for every year since 1950.

In the last 20 years, December has been the third best month for stock markets, with many global indices, including the ASX 200, rallying significantly during this month.

Although this may not be proof enough for some that the rally will happen this year, Forbes has already predicted it due to the fact that Wall Street has registered record gains following Janet Yellen’s testimony that the Federal Reserve will continue to support the economy through monetary stimulus. His prediction is also based on the recent performance of the Dow index, which has broken out of its usual trading pattern. This analysis is, however, fuelled by the belief that the US stock market is in a rapidly inflating bubble, casting a much darker forecast for the American economy.

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My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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