Dear clients,
Bruised investors are hoping a so-called Santa Claus rally can soften the blow from a tough year for U.S. equities and potentially improve the outlook for 2023.
The market really could use a little holiday spirit this year. In December — usually a strong month for stocks — the S&P 500 lost about 6% as shares of Tesla, Amazon and other pillars fell. The index has fallen nearly 20% since the start of the year and is heading for its worst annual performance since 2008.
Practice shows that the market still has a chance to reduce these losses. CFRA Research data shows that US stocks rose during the last five trading days of December and the first two days of January about 75% of the time, due to low liquidity, tax loss collection and New Year’s bonus investment.
This year, the Santa rally begins on Friday, if it happens at all. It will become clear only on the second trading day of 2023.
This phenomenon has lifted the S&P 500 by an average of 1.3% since 1969, according to The Stock Trader’s Almanac. Data from LPL Financial since 1950 has shown that a December rally without Santa Claus was usually followed by a weaker year.
The S&P 500 gained an average of 4.1% for the year after December without the Santa Claus rally, compared to a 10.9% gain after the period when it took place. The data also showed that January earnings are flattening in a year without Santa, with the index falling 0.3% on average, compared to a 1.3% gain after Santa’s year.
According to analysts, if Santa Claus does not come, it usually means that there is something in the market that causes confusion or an obstacle that the market is facing. The negative mood does not change, only because the year changes. The lack of a „Santa Claus rally“ this month with a „coal sell-off“ in its place is a troubling sign about 2023 US equity returns in 2023.
