Is the Santa Rally Coming to Town?   

  • Home
  • Is the Santa Rally Coming to Town?   

Is the Santa Rally Coming to Town?   

As 2023 comes to a close, there is much excitement about trading in various types of assets. But will this excitement continue into the second half of the month? Moreover, do we see an incoming Santa Rally that promises better returns on our investments?  

Let's Dive Right In!

Santa Rally : What is It?

First, we need to know what a Santa Rally is and why traders should consider it when they trade.  

The Santa Rally is a price rally in the stock market. It occurs after Christmas and lasts until the first two days of the new year.   

Yale Hirsch created the term in 1972 after studying stock market behaviour in the past.  

What Drives the Santa Rally? 

Multiple reasons can attribute to this phenomenon. During Christmas, many institutional traders take a break and continue vacationing or spending time with their families.  

Traders sell assets that are not doing well to balance out their gains and reduce their tax payments.  

During this period, retail traders quickly populated the space that institutional investors vacated. Because of lower trading volume, even comparatively less buying activity generates a price rally.  

During the holidays, traders are usually positive and optimistic, leading to a bullish market trend.  

Furthermore, a lot of traders invest in assets during this period in anticipation of the January Effect. In short, they are expecting stock prices to ride the optimism generated by the arrival of a New Year.   

Portfolio managers also engage in window dressing activities around this time. A lot of traders invest in stocks during this period because of New Year resolutions and holiday spending too.  

What the Trends Say

A Wall Street Journal report in January 2023 analysed the Santa Rally during the 2022-23 period. It noticed the S&P 500 rising 0.8% during this period, marking the seventh time in a row when the index witnessed Santa Rallies.  

Let’s see how the top three indices, S&P 500, Dow Jones, and Nasdaq, performed in the past five years.  

Source: Wall Street Journal

Except for the Nasdaq showing a negative performance during the last season, the Santa Rally seems to have stood the test of time.  

Jeffrey Hirsch, the editor-in-chief of the Stock Trader’s Almanac, recently assured that since 1969, the average S&P 500 gains during the Santa Rally has been a “respectable” 1.3%.  

The charts have rallied during this period in 34 of the previous 45 years, or more than 75% of the time. Stocks have risen 23 times since 1994, riding the Santa Claus rally.   

But the overall financial market rally did not happen during the bear markets like it did in 2000-01.  

Should we expect a Santa Rally in 2023?

Can we actually expect a Santa Rally around this coming Christmas? What are the factors we need to keep in mind to take advantage of the phenomenon?  

The world economy is facing high inflation even as central banks are hiking interest rates across the globe.  

Federal Reserve’s rate stood at 5.25–5.5%, and the Bank of England’s rate stood at 5.25%.  

Central banks will no longer raise rates aggressively as they have somewhat controlled inflation.   

If we rein in these two factors, we can expect a Santa Rally. However, inaction on the part of governments to tackle the crisis could lead to a bear market around the time.  

But if we handle these crises, the market can indeed rally. In this situation, stocks in e-commerce, technology, entertainment, and consumer goods will definitely benefit from the Santa Rally.  

Traders who wish to take advantage of the phenomenon should keep a close watch on the market during the period. To make a good choice, look at the prices from the last 15-20 years in this period. Additionally, it is important to assess the financial stability of the preferred stocks.  

Appropriate allocation and timing are also crucial for asset optimisation. Traders should quickly exit their positions as soon as the market goes bearish during the season.  

Trading during the Santa Rally is risky because of uncertainty.  

Please note that this Rally does not have a guarantee of happening every year, even though it usually occurs. Traders should diversify their portfolio to address these inherent risks. Taking care of the allocation of assets during this period is best.  

What Should BitDelta Traders Expect?

As Christmas approaches, BitDelta traders need to be on the lookout for any possible Santa Rallies. Irrespective of a rally happening in 2023 or not, the holiday season is notorious for being a volatile time for new and seasoned traders alike.

To be prepared for any unexpected rallies, BitDelta traders need to keep a close eye on stocks across various sectors and markets. The most popular indices to study the phenomenon are the S&P 500 and FTSE 100.  

In fact, the S&P 500 rose 7.4% during those few days amid the 2008 financial crisis, thanks to the Santa Rally. The FTSE 100 rose 2.01% during the period in 2020 amid the COVID-19 pandemic recession.   

Know that the Santa Rally is a brief event that could have lasting effects on next year’s trades. Therefore, traders should be cautious while making investment decisions and keep long-term interests in mind.  

Start your trading journey today and get in on the holiday action by registering for a BitDelta account today!

You can also join our growing Delta Squad Community on Telegram to get up-to-date signals and analysis on your favourite assets.

Join Today 👉

Most Popular
Stay In The Know
Our articles will find their way to your mail Box!
Social Media