Essentially, a Santa Claus rally is the sustained increase in the stock market that usually occurs within the last week of December through the first two trading days in January. One theory suggests that many consider the Santa Claus rally to be a result of people buying stocks in anticipation of the rise in stock prices during January, also known as the January effect. The Santa Claus rally is normally caused by tax considerations, investing of holiday bonuses, and a general feeling of optimism and happiness on Wall Street. Also, very large institutional investors tend to go on vacation at this time, which leaves the market to retail investors, who tend to be more optimistic. Furthermore, the Santa Claus rally has yielded positive returns in 34 of the past 45 holiday seasons since 1969.
This year, with four trading days left, including Wednesday, the Santa Claus rally made an appearance in a very big way. The long-awaited Santa Claus rally made a market gain of an outstanding 1,000-point on Wednesday. There are various aspects of the market gain that a chief market strategist sees as significant, one of them being the Santa trend. In fact, this gain of 5% is the largest single-day point gain in the history of the Dow Jones Industrial Average. Before Wednesday, the holiday season had been a big disappointment for investors due to the losses coming in before the four trading days.
The losses experienced were also due to the negative reactions from the market from several events coming out of the nation’s capital, such as: the resignation of Defense Secretary Jim Mattis, the partial government shutdown, and more. Also, concerns about a slowing global economy and the trade dispute with China are some of the causes of pressure for the market. In Asia, stock markets were also mixed on Wednesday. Generally, if Wednesday’s gains do not hold and slip away in the next three trading days, U.S. stocks could have their worst December ever.