Many people think that Santa Claus does not exist because no one has ever spotted him. However, a seasonal rally that has been observed during the festivities has got some traders and investors believing in the Christmas magic.
The so-called Santa Claus rally is a historical pattern related to a year-end stock rally. The term was invented in the early 1970s by a market analyst who noticed the pattern.
While it’s not guaranteed, stocks tend to rally during the final five trading sessions of the year. The same occurs in the first two trading days of the new year as well.
Historically, this market phenomenon has frequently delivered positive returns and a rise in stock prices. But, as with all seasonal effects, there is no guarantee that investors will see gains in any particular year. Past results cannot prove future performance, although data suggest that Santa rallies happen more often than not.
“Forget Christmas socks. What about stocks?”
What drives the Secret Santa rally? (No, it’s not reindeers.)
Many analysts believe that the Santa Claus rally results from people buying stocks in anticipation of the January rise in stock prices.
Other factors that may trigger the Santa rally are new year’s optimism or even the profiteering from holiday bonuses.
Investors might also look at the consumer goods sector, which often gets a boost from holiday shopping. (Historically, strong stock markets have correlated with increased spending on goods.)
This year, the sentiment could be positive among traders based on optimism that the new year may be the last for the pandemic. However, the latest variant, Omicron, has also brought with it some concern and pessimism.
So there we have it. Stocks might go up, but they also might go down (as with any other time of year!). One way to tap into both directions is to trade CFDs, which allows you to speculate on upwards and downwards market movements.
Santa Claus visited Eurotrader early this year and dropped off a bunch of new assets! How about giving a boost to your trading portfolio by speculating the prices of our new commodities and indices?