This year the day after Christmas is also the beginning of the Santa Claus Rally. The Santa Claus Rally was discovered and named by Yale Hirsch in 1972 and published in our 1973 Stock Trader’s Almanac as the last five trading days of the year and the first two trading days of the New Year. This short, sweet rally is usually good for about 1.3% on the S&P 500, but the real significance of the SCR is as an indicator.
It is our first seasonal indicator of the year ahead. Years when there was no Santa Claus Rally tended to precede bear markets or times when stocks hit significantly lower prices later in the year. As Yale’s famous line states (2021 Almanac page 116 and 2022 Almanac page 118): “If Santa Claus Should Fail To Call, Bears May Come to Broad and Wall.”
Since 1988, NASDAQ and Russell 2000 have enjoyed the greatest frequency of gains and average gain on the day after Christmas. NASDAQ has advanced 72.7% of the time with an average move of +0.39%. Small-caps have also advanced 72.7% of the time with an average advance of +0.39%. DJIA and S&P 500 have slightly softer records, but bullish nonetheless. Two days after Christmas, the market remains bullish however, the frequency and magnitude of gains does ease with NASDAQ bringing up the rear.