Market folks like to fancy themselves as amateur historians. It’s why you probably heard so much about something called the “Santa Claus rally” recently. The theory, first credited to Yale Hirsch of the Stock Trader’s Almanac in 1972, goes that a strong period for stocks during the end of one year bodes well for stocks in the new year. Who said the market was some mysterious entity that nobody understands?
Surprisingly, the Santa Claus rally has a pretty good track record. Since the mid-1990s, only six years did not end with a rally, and stocks finished the next January lower five of those six times, and the full year had a solid gain only once, in 2016, according to LPL Financial. So it should be good news that the benchmark S&P 500 Index surged 1.4% during the latest period. But, alas, stocks are poised for a horrible start to the year, dropping 1.68% in the first week of January through late Friday. That has implications for the “January Effect,” which says that the stock market’s performance during the first month sets the tone for the rest of the year.
