The Santa Claus Rally

 

You may have heard or read that December is usually a good month for stocks because of something called a ‘Santa Claus’ rally. No matter how bad the year, and for reasons we can only surmise, the broader equity markets do especially well the week before Christmas and New Year.

Suspicious minds place this anomaly on investment manager’s ‘window dressing’ their fund portfolios in order to present a better picture for clients, and more importantly, their superiors in order to gather a richer ‘year-end bonus’.

Other ‘studious’ minds feel that the ‘rally’ is due to an increase in ‘new money’ entering the market from clients who invest their Holiday bonuses or the rush to maximize retirement accounts.

I have usually stepped back from investing client’s money in the month of December only because whatever gains the month affords is not usually indicative of what to expect going forward.

Mark Hulbert, writer for MarketWatch.com, has access to numbers that most of us do not and reports that since 1896 the average return for all non-December months has been 0.5%. For December, Hulbert reports, the average return has been 1.2%! He goes on that the rally itself does not manifest itself until close to the actually Christmas and New Year holidays.

Hoping this is of some interest and solace why some brokers and financial planners avoid long-term investing for their clients in the month of December.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.