A Santa Claus rally is a calendar effect that involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the following January., According to the 2019 Stock Trader's Almanac, the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969. Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.
The Santa Claus rally was first recorded by Yale Hirsch in his Stock Trader's Almanac in 1972.
There is no generally accepted explanation for the phenomenon. The rally is sometimes attributed to the following:
- Increased investor purchases in anticipation of the January effect
- Lighter volume due to holiday vacations makes it easier to move the market higher
- A slow down in tax-loss harvesting that depresses prices at the beginning of December
- Short sellers / pessimistic investors tend to take vacations around the holidays
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