Is Santa (Rally) Real?

You may have heard of a long documented market phenomenon, aptly called the Santa Claus Rally, referring to the markets history of outsized returns during the last five days of the year and the first two days of the New Year. During this time frame, the market rises 77% of the time with an average return of 1.7%.

No one really knows why this pattern exists; though some attribute it to year-end portfolio tax related adjustments, vacations and plain old holiday optimism. The amazing thing is, despite being known for decades, the rally continues to persist.

It seems in good and bad years alike, the year ends with a bang.

Santa Rally

Unfortunately, the rally is much more muted in years with lower returns. Using the nearly flat 2015, the regression equation (removing years in which the market sold off by 10% or more) predicts no rally in 2015/2016.

Santa Rally Straight Line

While this may not be the year to take advantage of the Santa Claus Rally, there will be opportunity in the future. Something to keep in mind in 2016.

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