Hersh calculated that starting from 1969, the "Santa Rally" had a real impact on the market during 34 out of 45 holiday seasons, allowing investors to achieve higher returns during this period.

There are several hypotheses regarding the emergence of this phenomenon.

One suggests that it is linked to the holiday spirit, as many companies pay bonuses to their employees ahead of the New Year. Those employees who are engaged in investments use this money to acquire assets.

Other theories propose that institutional investors contribute to the rally by purchasing shares of market leaders to present more attractive financial reports, or that individuals aim to profit from the "January effect." Typically, stock prices increase during the first month of the year, and investors see this as an opportunity to earn money. Therefore, in November and December—considered favorable months for the stock market—they buy securities at lower prices and then sell them at higher prices.

At the same time, it should be noted that the New Year’s rally does not have clear and fundamental grounds. If it has occurred regularly in previous years, there is no guarantee that it will happen again this year.

 

Carson Investment's analysis shows that when the S&P 500 index increases by 10-20% during the year and approaches the traditionally strong fourth quarter, better results can be expected during this period. On average, the fourth quarter’s growth exceeds 5%, and in more than 84% of cases, the market demonstrates positive outcomes. In other words, a strong year typically ends just as strong.

At the same time, it should be noted that the New Year’s rally does not have clear and fundamental grounds. If it has occurred regularly in previous years, there is no guarantee that it will happen again this year.

 

When stocks decline by more than 1% in August and September, the market begins to recover significantly in October, as well as in the fourth quarter. In the last three instances when this occurred, October saw growth of 10.8%, 8.3%, and 8.0%, respectively. As for the fourth quarter, it showed gains in 12 out of 13 cases, with an average increase exceeding 7.0%. In other words, when the market shows weaker signs in August and September, a strong rally by year’s end is considered normal.

These were the key facts to know about the Santa Rally.

You can make investments by opening a brokerage account on our Cube Broker platform. Learn more HERE.

However, the Santa Rally is not a guaranteed phenomenon, and this material does not constitute investment advice or a recommendation.

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