This year, the “Santa Claus rally” might not begin until much later than usual. Still, it’s better late than never.
Ned Davis Research’s team of analysts said that stocks have been having a rough time before the “Santa Claus rally” period starts on Tuesday.
Some buyers are scared about that. Many people are beginning to wonder if the end-of-year rise will not happen for the second year in a row.
But history shows that there is still hope, even if the protest doesn’t start on time: The NDR team says that when stocks are having a rough time in the days before the Christmas holiday, they usually make up for it with big wins in the five trading days after the holiday.
“Even though we’re down 2.0% with only two days left, that has been a good sign for the five days after in the past.” According to a report sent to BourseWatch on Monday, the average return in the five days after Christmas was 2.0% in the 17 times that the first five days before Christmas were negative.
Stats from FactSet show that the S&P 500 has dropped almost 2% since the end of trading on December 17. For the most part, these losses happened after Federal Reserve Chair Jerome Powell’s news talk on September 18.
It was announced by the central bank that interest rates will be lowered again before the news conference. But stocks began to fall after Powell took the stage. Many blamed hints that the rate of decreases in interest rates on loans would slow down in 2025.
People usually mean the last five trading days of December and the first two trading days of the new year when they talk about the “Santa Claus Rally.” This year, the time frame starts on Tuesday and ends on January 3.
Dow Jones Market Data shows that the S&P 500 SPX +0.51% has gained an average of 1.3% during the Santa Rally since 1950, with gains happening 77% of the time.
The chart below from NDR’s cycle composite shows how stocks usually do at the end of the year.
Putting aside the issue of timing, NDR pointed to other reasons why stock prices might recover some of the losses they suffered in December before the start of the new year.
For starters, several indicators kept up to date by NDR show that the U.S. market has fallen into short-term oversold area.
Also, a sentiment tracker used by the research firm has seen a clear drop in buyers’ confidence as stock prices have fallen since the beginning of December. That could mean that buyers have more cash on hand, ready to use to boost the market.
Investors still have good gains in 2024, even if the rise at the end of the year doesn’t happen. FactSet data showed that the S&P 500 was up more than 24% for the year as of Monday noon.
The S&P 500 SPX +0.48% and the Dow Jones Industrial Average DJIA -0.03% were both moving lower to start the week that was cut short by the holidays. They lost some of the gains they made on Friday. The major averages all went down at the end of last week.
But the Nasdaq Composite COMP +0.86% kept going up. Big Tech stocks like Nvidia Corp. NVDA +3.40%, Broadcom Inc. AVGO +4.98%, and Tesla Inc. TSLA +2.58% all saw their prices rise, which helped the index stay strong.
