【Weekly Wealth Trends】 Does the "Santa Rally" have an 80%+ win rate? Where are the opportunities?

Hello, Tigers!

According to the earnings calendar, there aren't many noteworthy companies this week. However, as the Nasdaq broke higher on Monday, chatter about the "Santa Rally" is starting to pick up.

What exactly is the Santa Rally, and how should regular investors take advantage of it? I'll explain it all in this article!

1. What Is the Santa Rally?

The "Santa Rally" refers to the final five trading days of the year (usually starting after Christmas) and the first two trading days of the new year. According to Yale Hirsch, author of The Stock Trader’s Almanac, U.S. stocks have historically shown strong performance during this period. Over the past 70 years, the S&P 500 has gained an average of over 1.3% during these seven trading days.

Statistics show that in the last 70 years, the S&P 500 has risen about 80% of the time during this period.

In the coming weeks, the approach of the Santa Rally is likely to boost market optimism. However, Carson Group’s Chief Market Strategist Ryan Detrick cautions that the rally is typically limited to the end-of-year and early-January rebound seen in most years and doesn’t cover the entire month of December.

So, how has the U.S. stock market historically performed in December as a whole? Detrick analyzed data from presidential election years over the past 70+ years:

December is historically the second-best month for the S&P 500 during election years—only November, the election month itself, performs better. Considering that U.S. stocks surged again this election November, this trend appears to be playing out once more. Notably, December in election years has seen the S&P 500 rise 83.3% of the time, making it the most likely month for gains during such years.

Even outside the influence of elections, Detrick’s data shows that December has been the S&P 500’s third-best performing month since 1950, trailing only April and November.

In terms of probability, December is clearly the month most likely to see gains.

Detrick’s research shows that over the past 70 years, the S&P 500 has risen in December nearly 75% of the time. The second-best month, April, has a win rate of just over 71%.

2. How to Position for the Santa Rally

With such strong historical performance in December, how should investors position themselves?

Andrew Tyler, Global Market Intelligence Head, wrote in a report to clients on Monday:

“With a supportive macro environment, earnings growth, and the Fed’s continued backing, we remain strategically bullish heading into year-end. We believe it’s wise to ride the market’s momentum, expecting limited downside until mid-January.”

Tyler’s team recommends favoring value and cyclical stocks but also continuing to invest in the so-called "Magnificent Seven" tech stocks, data centers, and semiconductors.

A. Semiconductors

Chip stocks surged Monday night, with SMH (VanEck Semiconductor ETF) rebounding sharply after hitting key support. SMH had been consolidating within a triangle pattern, and with support holding, the focus now shifts to breaking resistance.

According to insiders, U.S. restrictions on China’s semiconductor industry may be less severe than expected, boosting stocks like ASML (ASML.US) and other European chip equipment companies.

Sources indicate that China’s major memory chip manufacturer, ChangXin Memory Technologies (CXMT), is unlikely to be added to the U.S. trade restriction list, though the timing and specifics remain uncertain.

The semiconductor sector has been range-bound for some time, and if it breaks out, it could see a significant rally in the short term.

B. AI Applications

I’ve already written an article on AI application investment logic last week, and my bullish stance remains unchanged. If you missed it, feel free to check it out:

【Weekly Wealth Trends】AI on the Rise? Mid-to-Downstream Sectors May Spark the Boom!

3. Trading Directions for This Week

A. Semiconductor Sector

B. AI Application Sector

Tiger will share weekly trading trends based on market highlights. Interested users can check the “Wealth” tab under “Featured” or “Market Insights” for more information!

Disclaimer: The listed tradeable assets are data-based summaries and do not constitute investment advice.