The many advisers forecasting a “Santa Claus rally” for U.S. stocks are too eager. That’s because the only year-end seasonal strength worthy of being called a Santa Claus rally doesn’t begin until after Christmas. The Thanksgiving-until-Christmas period does not itself exhibit any statistically significant rally potential.
Since 1896, when the Dow was created, its average gain when measured this way is 3.35%. That may appear impressive — the equivalent of more than 1,100 Dow points currently —but isn’t really. When other months’ rally potentials are measured in a similar way, many exceed that of the post-Thanksgiving period.
In fact, the post-Thanksgiving rally potential is below the 3.75% average across the other 11 months of the calendar. In other words, the several-week post-Thanksgiving period is actually a below-average time for the stock market. Also encouraging is that this tendency is stronger in years, like this year, in which the stock market lost ground year-to-date until Christmas. On average across all such years since 1896, the Dow from Christmas until the second day of January gained 2.2%. That compares to a 1.2% average gain in years in which the stock market produced a year-to-date gain up until Christmas.