Much has been written about the Santa Claus Rally (for instance here). But even this period often has its own “personality”. So let’s take a closer look.
The Periods
There are four “Periods” to the Santa Claus Rally. Specifically:
Period 1: The last 6 trading days of November
Period 2: The 1st 6 trading days of December
Period 3: December trading days #7 through #11
Period 4: December trading day #12 through the end of the month
For our test we will use daily price data for the Dow Jones Industrials Average starting on 12/31/1933 and look at each period separately and together.
Figure 1 displays the growth of $1,000 invested in the Dow only during each of the four Periods listed above.
Figure 1 – Growth of $1,000 invested in the Dow during each pas o the Santa Claus Rally Periods 1, 2, 3 and 4;1934-2016
*Period 1 (Blue) was choppy into 1950 and has been mostly trending higher ever since.
*Period 2 (Red) had a down swing from 1974 through 1985 but mostly higher the rest of the time.
*Period 3 (Green) has some upswings here and there but has been underwater since the very beginning. This is the weakest of the four periods.
*Period 4 (Purple) has been the strongest of the four periods and has tripled in value since 1933.
The “Bullish” Periods
Since Period 3 has been consistently underwater since the beginning let’s designate Periods 1, 2 and 4 as “Bullish”.
Figure 2 displays the growth of $1,000 invested only during Periods 1, 2 and 4 each year since 1934 – including so far in 2017 (in other words, we are in the market for the last 7 days of November, the first 6 days of December and during December trading day 12 through the end of the year, and out of the Dow during December trading days #7 through 11).
Figure 2 – Growth of $1,000 invested in Dow Jones Industrials Average ONLY during Favorable Periods 1, 2 and 4 of the Santa Claus Rally; 12/31/1933-12/6/2017
Figure 3 displays some comparative numbers for each of the individual periods and the combined bullish periods.
Figure 3 – Facts and Figures; 1934-2016
Summary
In 2017, Period 1 ended on 11/30/17 with a gain of +2.9% for the Dow. As this is written there are two days left in Period 2. At this point Period 2 is showing the Dow down -0.38%. So combined these two are showing a net gain of +2.5%.
Will the Dow rebound during Period 2? Will Period 3 show a loss? Will Period 4 show a gain thus locking in another Favorable Periods 1, 2 and 4 Santa Claus gain?
Stay tuned.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Hey Jay. Interesting stuff. I recall a strategy I found on either this blog or perhaps in your book about “buying on the dips” in the S&P and introducing leverage if the underlying index was above its 250 day moving average. Any thoughts on applying something similar with any DOW/S&P Santa Clause Rally approach?
Nice to see the different periods.
Recently you wrote about the outperformance of small caps though? Does the Dow beat them during December vs longer hold period in that large cap small cap switching model?