MW Stock market's December performance in balance as 'Santa Claus rally' begins
By William Watts
S&P 500 in danger of rare December loss
It's all on Santa's shoulders.
2024 has been a stellar year for the S&P 500 SPX - but no thanks to December, which is in danger of bucking its history as one of the best months of the year for stocks. The S&P 500 was down 1% on the month through Monday's close after back-to-back gains helped to undo some of the damage from a midweek rout last week, when the Federal Reserve signaled fewer interest-rate cuts were in store for 2025 than policymakers had previously anticipated.
"The S&P has put up reasonable numbers over the last two sessions, as it attempts to resolve the oversold condition, but the rally has lacked momentum," said Jeff deGraaf, chairman and head of technical research at Renaissance Macro Research, in a note ahead of Tuesday's opening bell.
He noted that December historically provides a 74% historical probability of positive returns, "but 2024 is shaping up to be the 26% outlier unless it gets some serious help." (See chart below.)
That may be where the jolly old elf comes in. The so-called Santa rally period began at Tuesday's opening bell and will end on Jan. 3. First described by Stock Trader's Almanac founder Yale Hirsch in 1972, the Santa rally speaks to a seasonal tendency for the S&P 500 to rise over the last five days trading days of a calendar year and the first two of the new year.
Read: Wall Street's 'Santa Claus rally' window is about to open with the Dow down in December
Average gains for the S&P 500 over the seven trading-day period since 1969 are a respectable 1.3%, according to the Almanac and Dow Jones Market Data. The average S&P 500 gain over any seven trading-day period is 0.24%.
What's behind the phenomenon? MarketWatch columnist Mark Hulbert has argued that it may be in part due to the fact that investors don't want to think about the markets over the holiday period. That's perhaps allowed the pattern to endure, even though most such seasonal events tend to get discounted away by eager investors once they're publicized.
The rally period was off to a solid start Tuesday, with the S&P 500 gaining 0.7%, trimming its December loss to just 0.2%. The Dow Jones Industrial Average DJIA was up 228 points, or 0.5%, while nursing a December decline of 4%. The Nasdaq Composite COMP rose 1.1% Tuesday and was up 3.9% in December on a resurgence by tech-related stocks.
The stock market closes early Tuesday and U.S. markets will be shut Wednesday for the Christmas Day holiday, reopening Thursday morning.
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Investors will also pay attention given Hirsch's well-known saying: "If Santa Claus should fail to call, bears may come to Broad and Wall."
The lack of a Santa rally has tended to precede bear markets or periods when stocks could later be purchased at lower prices, noted Jeff Hirsch, editor of the Stock Trader's Almanac. Missing Santa rallies were followed by flat years in 1994, 2005 and 2015, he noted, as well as ugly bear markets in 200 and 2008 and a mild bear market that ended in February 2016, he wrote.
Of course, no market adage is gospel. Santa was a no-show last Christmas, yet the S&P 500 is on track for a 2024 gain of around 26% and its steepest pullback of the year was a mere 8.5% retreat between July 16 and Aug. 5.
-William Watts
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(END) Dow Jones Newswires
December 24, 2024 12:28 ET (17:28 GMT)
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