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The Santa Claus rally
The Santa Claus rally is a seven day window and nothing more. The last five trading days of the year plus the first two of January. Yale Hirsch defined it in the 1972 Stock Trader's Almanac and gave it the name, and it has been misquoted ever since as a December rally, a Christmas rally, or a general end of year drift. It's none of those.
Since 1950 the window has averaged +1.3% and finished positive 78% of the time. On its own that means very little, because in a market that rises over time almost any window looks positive. The number that makes it interesting is the comparison. A randomly chosen seven trading days over the same period averaged +0.3% and was positive 58% of the time. So the window is roughly twenty percentage points more likely to be positive, and about four times larger in average return, than an arbitrary stretch of the same length. It really is doing something beyond stocks generally going up.
I put this page together mostly as a template. It's the cleanest example I know of why a seasonal statistic is meaningless without its base rate, and it's honest about how small the edge turns out to be once you look at it properly. One thing I've deliberately left out is Hirsch's other claim, that a failed Santa window is bearish for the year that follows, because that rests on far fewer observations than the return figures do. LPL's analysis and the original definition are both linked at the foot of the page, and they're short.
The Santa Claus rally covers the last five trading days of the year plus the first two of January, seven sessions in total. Since 1950 that window has averaged +1.3% and finished positive 78% of the time. The comparison that matters is against a randomly chosen seven day window in the same period, which averaged +0.3% and was positive 58% of the time. The effect is therefore real rather than an artefact of markets generally rising, though seven sessions is a short window and the absolute sums are small.
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