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When does Christmas arrive on Wall St?
What does the chart show?
This chart shows the average returns of the major US equity indexes in the last week before Christmas and the first week after Christmas, alongside the average weekly performance of the indexes since 1985. The data suggests that in the weeks before and after Christmas, US markets regularly perform better than they do compared to other weeks of the year. The NASDAQ performs especially strongly, returning 0.7% and 0.87% on average in the first week before and after Christmas respectively. Compared to the average weekly performance of 0.31%, this is a significant outperformance. The S&P 500 and Dow Jones Industrial Average (DIJA) also outperform their weekly averages both before and after Christmas.
Why is this important?
The tendency for markets to rise during the Christmas period is a widely observed phenomenon known as the ‘Santa Claus rally’. Explanations for what causes this rally can range significantly. One explanation is that investor optimism fuelled by Christmas spirit leads to the buying of stocks. Another is that over the holiday period lower market activity from institutions reduces liquidity and causes higher levels of volatility, even though that could also lead to higher-than-average losses. Whatever the explanation, short-term fluctuations in market prices can be caused by a number of factors that are virtually impossible to predict. At first glance, the Santa Claus rally may seem like an amusing quirk that opportunistic traders can use to make a quick return, but the normal risks are just as prevalent during the holiday period. Despite abnormally high average returns during the weeks before and after Christmas, stocks actually fell 40% during the observed periods. The Santa Claus rally can therefore be seen as a seasonal reminder to investors: Short-term bets on market movements are not a sustainable investment strategy. Having a well-diversified portfolio with a longer-term outlook can help investors ride short-term market fluctuations and enjoy more sustainable returns, meaning more enjoyable Christmases for years to come.
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By Mondial DubaiWhat does the chart show?
This chart shows the average returns of the major US equity indexes in the last week before Christmas and the first week after Christmas, alongside the average weekly performance of the indexes since 1985. The data suggests that in the weeks before and after Christmas, US markets regularly perform better than they do compared to other weeks of the year. The NASDAQ performs especially strongly, returning 0.7% and 0.87% on average in the first week before and after Christmas respectively. Compared to the average weekly performance of 0.31%, this is a significant outperformance. The S&P 500 and Dow Jones Industrial Average (DIJA) also outperform their weekly averages both before and after Christmas.
Why is this important?
The tendency for markets to rise during the Christmas period is a widely observed phenomenon known as the ‘Santa Claus rally’. Explanations for what causes this rally can range significantly. One explanation is that investor optimism fuelled by Christmas spirit leads to the buying of stocks. Another is that over the holiday period lower market activity from institutions reduces liquidity and causes higher levels of volatility, even though that could also lead to higher-than-average losses. Whatever the explanation, short-term fluctuations in market prices can be caused by a number of factors that are virtually impossible to predict. At first glance, the Santa Claus rally may seem like an amusing quirk that opportunistic traders can use to make a quick return, but the normal risks are just as prevalent during the holiday period. Despite abnormally high average returns during the weeks before and after Christmas, stocks actually fell 40% during the observed periods. The Santa Claus rally can therefore be seen as a seasonal reminder to investors: Short-term bets on market movements are not a sustainable investment strategy. Having a well-diversified portfolio with a longer-term outlook can help investors ride short-term market fluctuations and enjoy more sustainable returns, meaning more enjoyable Christmases for years to come.