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According to Investopedia:
The Santa Claus rally is the sustained increase in the stock market that occurs around the Christmas holiday on Dec. 25. Most estimate these rallies happen in the week leading up to the Christmas holiday, while others see trends that begin Christmas Day through January.
Theories that explain the Santa Claus rally include end-of-year tax considerations, a general feeling of optimism and seasonal happiness on Wall Street, and investing holiday bonuses. Some institutional investors settle their books and vacation during this time of year, leaving the market to retail investors, who tend to be more bullish toward the market.
Good odds
The odds are good that Santa won’t disappoint in 2024. Here’s the history of the past 99 Decembers, compared to the other months. December is most frequently positive and has delivered one of the best average returns.
Will 2024 have a happy ending?
The S&P 500 has returned 26% so far this year, placing it in the group of returns above 20% in this decade. It will stay in that group as long as the stock market doesn’t lose more than 5% in December. If it repeats the biggest December loss of 14%, experienced in 1931, the annual return in 2024 will decline to 8%, which is near average.
2024 likely will go into the record books as a pretty good year.
Annual Returns by Year of the S&P 500 by Decile
Conclusion
Three years ago, in April 2021, the Council on Economic Policies wrote:
“If something cannot go on forever, it will stop.” This famous observation was made by Herb Stein, Senior Fellow at the American Enterprise Institute. It became famous largely because it was just that, obvious. Yet, what is no less obvious is that public policy is commonly based on a wholly contrary assumption, that the future will be like the past, more or less. This is deeply unfortunate since many of the most important systems on which the future of mankind depends are evolving in an unsustainable way. They threaten to stop. Global economic, political, environmental and health systems are all showing clear signs of stress and prospective breakdown. The Four Horsemen of the Apocalypse can be clearly seen riding, purposefully, in our direction.”
The past 16 years has been the longest bull stock market ever. Will it go on forever?
Ron Surz is president of Target Date Solutions, developer of the patented Safe Landing Glide Path and Soteria personalized target date accounts. He is also co-host of the Baby Boomer Investing Show. Surz’s passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book, “Baby Boomer Investing in the Perilous 2020s,” and he provides a financial educational curriculum.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
