Santa Claus welcomes his visitors at his "office" in Rovaniemi, Finnish Lapland on December 13, 2011.JONATHAN NACKSTRAND
If you're skeptical about the existence of Santa Claus, you might also wonder if Santa Claus rallies are also real. These are stock market rallies that are supposed to kick in after the Christmas holidays and end with the arrival of the New Year – and there is some persuasive evidence supporting their existence.
Mark Hulbert at MarketWatch (via Abnormal Returns) pointed out that, historically speaking, the odds of a rally in the final week of the year – or just four trading days, given that markets are closed on the Monday following Christmas – are quite high. Since 1896, the Dow Jones industrial average has gained an average of 1.07 per cent. If all weeks of the year were so strong, the annualized gain for the Dow would be 80 per cent.
The gains are consistent, too: The Dow has turned in a positive performance 78 per cent of the time, compared to 54 per cent for all other weeks of the year. Last year fit the pattern, sort of. The Dow gained, though the "rally" was a mere 4 points.
The question is, should you base your investment decisions on these patterns? Probably not. As Mr. Hulbert noted: "The more legitimate use of the results presented here would be to alter the timing of transactions you were going to make anyway. If you were otherwise inclined to sell some or all of your stock holdings, for example, the existence of the Santa Claus Rally would suggest that you hold off on those sales until early January.
"And if you were otherwise planning to invest a lump sum in the stock market in coming weeks, year-end seasonal strength would suggest that you might want to make that investment in the next couple of days rather than wait until January."
David Berman