Will we witness a Santa Claus rally in the capital markets again this year?

The end of the year in the capital markets is usually marked by the Santa Claus rally phenomenon, which is defined as growth in the last five trading days of December and the first two trading days of January.  During the last two Christmas seasons, investors have been able to reap interesting profits as a result. Will we see it again this year?

The Santa Claus rally phenomenon was defined by analyst Yale Hirsch, who is also the author of The Stock Trader's Almanac. But make no mistake, it is not necessarily truncated to just the aforementioned seven days. Historically, the Santa Claus Rally usually kicks off the day after Christmas, but it can start earlier, such as mid-December. According to The Stock Trader's Almanac, the Santa Claus rally is a perfect example of a seasonal phenomenon.


What does the historical data show?

From December 1, 2021 to January 4, 2022, the Santa Claus rally caused the S&P 500 Index to rise 4.98 percent[1]. A year earlier, the index rose 2.56 percent in the same period. The available data show that, on average, the S&P 500 index rose 1.3 percent during the duration of this phenomenon. Overall, this rally has produced positive results for investors 34 times in the past 45 seasons, and according to the Stock Trader's Almanac, the percentage of times the rally has occurred has grown to 67 percent since 1993.  [*]


The exception proves the rule

As can be seen from the above data, however, the Santa Claus rally effect does not occur every year, so the development cannot be 100% predicted. What is undoubtedly interesting, however, is the fact that during bear market trends and economic downturns, this phenomenon can be even stronger. During the recession, which lasted from October 2007 to March 2009, we saw two rallies - one in the week of December 17, 2008, during which a 1.32 percent increase was recorded. The second from December 29, 2008, when the increase was as high as 6.81 percent. [*] During the last three recessions, there have been a total of five holiday seasons, with Santa Claus rallies recorded in four of them.

santa claus

Chart: performance of the S&P 500 Index during the five biggest Santa Claus Rallies until 2020 (Source: Smartasset.com) [*]


Reasons for the formation

There are several hypotheses that justify the origin of the Santa Claus Rally. One is tax optimization and the associated closing of losing positions at the end of the year and subsequent reinvestment of funds. Another may be a general feeling of optimism among investors due to the festive mood, which is also influencing events on Wall Street. Large investors often spend these holidays away from the trading world, while the market is dominated mainly by retail investors who tend to be bullish. Another factor that can influence the formation of a rally is Christmas bonuses, which were not used to buy presents and can serve to boost investment portfolios. Last but not least, in recent years, the fact that a number of investors have been expecting a rally to occur and have therefore bought shares, thus contributing to the fulfilment of this expectation, has undoubtedly also contributed to the rally's emergence.


While the Santa Claus Rally can undoubtedly be a pleasant way for investors to end the old year and start the new one, the key to the success of any investment remains regularity and appropriate portfolio diversification in order to minimize risks.


Olívia Lacenová, analyst of Wonderiterest Trading Ltd.



[*] Past performance is no guarantee of future results


[1] https://www.investing.com/indices/us-spx-500


This text constitutes marketing communication. It is not any form of investment advice or investment research or an offer for any transactions in financial instrument. Its content does not take into consideration individual circumstances of the readers, their experience or financial situation. The past performance is not a guarantee or prediction of future results.

🍪 Cookies

We use cookies to store, access and process personal data to give you the best online experience. By clicking Accept Cookies you consent to storing all cookies and ensure best website performance. You can modify cookie preferences or withdraw consent by clicking Cookie Settings. To find out more about cookies and purposes, read our Cookie Policy and Privacy Notice.

Cookies settings

Cookie Control

What are cookies?

Cookies are small text files that enable us, and our service provides to uniquely identify your browser or device. Cookies normally work by assigning a unique number to your device and are stored on your browser by the websites that you visit as well as third-party service providers for those website. By the term cookies other technologies as SDKs, pixels and local storage are to be considered.

If Enabled

We may recognize you as a customer which enables customized services, content and advertising, services effectiveness and device recognition for enhanced security
We may improve your experience based on your previous session
We can keep track of your preferences and personalize services
We can improve the performance of Website.

If Disabled

We won't be able to remember your previous sessions, that won't allow us to tailor the website according to your preferences
Some features might not be available and user experience reduced without cookies

Strictly necessary means that essential functions of the Website can not be provided without using them. Because these cookies are essential for the properly working and secure of Website features and services, you cannot opt-out of using these technologies. You can still block them within your browser, but it might cause the disfunction of basic website features.

  • Setting privacy preferences
  • Secure log in
  • Secure connection during the usage of services
  • Filling forms

Analytics and performance tracking technologies to analyze how you use the Website.

  • Most viewed pages
  • Interaction with content
  • Error analysis
  • Testing and Measuring various design effectivity

The Website may use third-party advertising and marketing technologies.

  • Promote our services on other platforms and websites
  • Measure the effectiveness of our campaigns

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.