The Christmas holiday may be over, but the cheer is likely to remain through the end of the year, analysts predict – if not longer. The period between Christmas and New Year’s is often referred to as the “Santa Claus Rally,” when stock markets tend to head higher. Since 1950, the S&P 500 has gained an average of 1.3 percent during this period, CBS news reported.
According to some analysts, the Santa Clause Rally is a good indicator of how the markets will head during the following year: if the markets move strongly higher, the trend is likely to persist. Skeptics, however, worry that even if the markets head higher during the end of 2019, the trend won’t be sustainable, since the markets have already catapulted higher this year, and the S&P 500 is up nearly 30 percent since last year, a trend that will be difficult to sustain moving forward.
Interestingly, data compiled by CNBC shows that when there’s a positive Santa Clause Rally that includes the last five days of a year and the first two trading sessions of the new year, the January barometer is positive – even if there is an initial selloff in January. In fact, in the past 30 years, the entire year ended in positive territory after a positive Santa Claus Rally in 27 of the past 30 Santa Claus Rallies.
In 2018, the markets saw the worst pre-Christmas pullback in history, with stock prices plummeting around 2 percent in the trading session before Christmas. Despite that decimation and the negative sentiment associated with that difficult day, the declines did not head into the following year, and markets saw a banner year in 2019. The question remains, therefore, whether the trend can reverse in 2020 just as it did in 2019? Will a positive end to the year give way to a decline?
According to Reuters, the U.S. saw record online shopping during this year’s holiday season, a sign that the economy is still thriving despite concerns of a global economic slowdown. Analysts had been concerned that a later Thanksgiving this year would result in a shorter holiday shopping season between Thanksgiving and Christmas, but those fears proved unfounded with e-commerce sales hitting record highs this year, according to a tweet by U.S. President Donald Trump.
“2019 HOLIDAY RETAIL SALES WERE UP 3.4% FROM LAST YEAR, THE BIGGEST NUMBER IN U.S. HISTORY. CONGRATULATIONS AMERICA!,” Trump tweeted.
Mastercard spokesman William Tsang disputed the president’s claims, saying that 2019’s holiday sales were not the highest on record. Either way, there’s no question that U.S. holiday sales were high, inspiring confidence that may propel the markets into the New Year. It remains to be seen whether the growth will persist in the long term, but traders should definitely continue to buy on dips as things develop.