The Santa Rally – Christmas Growth in the Stock Market
You may well of heard of the ‘Santa Rally’. It’s a commonly discussed stock market theory. It is the basic concept that the stock markets, particularly the major indices, show positive returns on the run up to Christmas and the New year.
Is the Santa Rally a myth?
Well, it’s very easy to point out specific years and say yes it’s working. However at Money S&I we like to research ideas and show strong evidence to support or disprove them.
We decided to test the FTSE100 index for evidence of the Santa Rally. We pulled data for the last 20 Christmas periods and came up with the following.
Last Closing Price in November vs Last Closing Price in December
| Year | Price 30/11 | Price 31/12 |
Diff | % Diff |
| 2004 | 4,703.20 | 4,814.30 | 111.10 | 2.36% |
| 2005 | 5,423.20 | 5,618.80 | 195.60 | 3.61% |
| 2006 | 6,048.80 | 6,220.80 | 172.00 | 2.84% |
| 2007 | 6,432.50 | 6,456.90 | 24.40 | 0.38% |
| 2008 | 4,288.00 | 4,434.20 | 146.20 | 3.41% |
| 2009 | 5,190.70 | 5,412.90 | 222.20 | 4.28% |
| 2010 | 5,528.27 | 5,899.94 | 371.67 | 6.72% |
| 2011 | 5,505.42 | 5,572.28 | 66.86 | 1.21% |
| 2012 | 5,866.82 | 5,897.81 | 30.99 | 0.53% |
| 2013 | 6,650.57 | 6,749.09 | 98.52 | 1.48% |
| 2014 | 6,722.62 | 6,566.09 | -156.53 | -2.33% |
| 2015 | 6,356.09 | 6,242.32 | -113.77 | -1.79% |
| 2016 | 6,783.79 | 7,142.83 | 359.04 | 5.29% |
| 2017 | 7,326.67 | 7,687.77 | 361.10 | 4.93% |
| 2018 | 6,980.24 | 6,728.13 | -252.11 | -3.61% |
| Average | 109.15 | 1.95% |
This first table and graph above shows the FTSE100 daily closing price. Please note that if this falls on a non trading day the price is the close on the previous trading day.
As you can see from the table above the FTSE100 rose in price in 12 of the 15 years. That’s 80% of the time. The average difference was 1.95%. (* You need to note though this is the midpoint close price and doesn’t account for the spread between buy and sell prices).
It has been noted by many that speculation later in the month around the 15th December can show better growth. We tested this again as below from 15th December (or previous trading day).
Closing Price December 15th vs Last Closing Price in December
| Year | Price 15/12 | Price 31/12 | Diff | % Diff |
| 2004 | 4,728.20 | 4,814.30 | 86.10 | 1.82% |
| 2005 | 5,495.30 | 5,618.80 | 123.50 | 2.25% |
| 2006 | 6,260.00 | 6,220.80 | -39.20 | -0.63% |
| 2007 | 6,397.00 | 6,456.90 | 59.90 | 0.94% |
| 2008 | 4,277.60 | 4,280.40 | 2.80 | 0.07% |
| 2009 | 5,285.80 | 5,412.90 | 127.10 | 2.40% |
| 2010 | 5,882.18 | 5,899.94 | 17.76 | 0.30% |
| 2011 | 5,400.85 | 5,572.28 | 171.43 | 3.17% |
| 2012 | 5,921.76 | 5,897.81 | -23.95 | -0.40% |
| 2013 | 6,439.96 | 6,749.09 | 309.13 | 4.80% |
| 2014 | 6,182.72 | 6,566.09 | 383.37 | 6.20% |
| 2015 | 6,017.79 | 6,242.32 | 224.53 | 3.73% |
| 2016 | 6,999.01 | 7,142.83 | 143.82 | 2.05% |
| 2017 | 7,490.57 | 7,687.77 | 197.20 | 2.63% |
| 2018 | 6,845.17 | 6,728.13 | -117.04 | -1.71% |
| Average | 111.10 | 1.84% |
The results show a drop in % profits to an average of 1.84%. It seems slightly worse, but it is key to consider the fact that the average loss is less. The biggest rise might be slightly lower at 6.2%, but the biggest loss is far lower at just 1.71% as compared to when trading the whole month it was 3.61%.
Other Santa Rally Dates & Trading Strategies
The debate on the dates go on and on and in fact it probably has changed and will continue to change. According to Investopedia, ‘Yale Hirsch, the founder of the Stock Trader’s Almanac, coined the “Santa Claus Rally” in 1972. He defined the timeframe of the final five trading days of the year and the first two trading days of the following year as the dates of the rally’.
The whole argument of dates can be completely twisted if we in fact just take the Santa Rally as a concept and a rough trend. Many traders would then take this idea and wait for other signals as entry and exit points. These could include using trend lines, support lines, relative strength and much more. The counter argument to using these would be that you could miss the rally waiting for the perfect entry.
Break Even Dates
What would happen if you closed the profitable positions and hung on till break even? This is a key point between the 2 strategies. With the whole of December strategy in 2015 you might be waiting until the 13th April for the prices to catch up. However, with the 2nd strategy you could close at break on all trades by the 8th January. (please note this excludes spreads and trading fees)
How can the Santa Rally be traded?
There are few different ways. One of the easiest ways is by spreadbetting or CFD trading. However these are both complex instruments. So you need to be very careful before doing this. It is also important to note that with trading you get the spread (difference between buy & sell prices) and you can also get other fees. As we have seen the average growth is only 1.95% which although way above the usual spread it is very important to keep this in mind.
Hopefully you have found this article interesting.
Please note all the data and stats here are put together to the best of our ability, but we do not advise anyone to try trading or investing without proper research and advice. Everything we publish is thoroughly researched. We present financial and investment information and will on occasion express our opinion on these. The information provided throughout our website is not and cannot ever be intended either as investment, financial, tax, legal advice or otherwise.
References: Santa Claus Rally: What It Is and Means for Investors (investopedia.com)
If you’ve enjoyed this post you might also like to read:
Turn Of The Month Trading Strategy (2023 Update) (moneysandi.com)
