Wall Street has always had the seasonal magic law of "Santa Claus quotes". According to Yale Hirsch, author of Stock Trader's Almanac in 1972, U.S. stocks are always likely to perform strongly on the last 5 trading days of each year and the first two trading days of the following year.
This year's "Santa Claus Quotes" will begin next Monday (December 27). According to LPL Financial, this will be the latest "Santa Claus quote" to open in nearly 11 years. But people may be underestimating the importance of this law to market psychology.
Moreover, history shows that if "Santa Claus" does not come to Wall Street in December, then the "Christmas Monster" will land on the stock market in January, which means that the US stock market may not perform well in January. "Christmas Monster" refers to a movie that tells the story of a green-haired monster named Grinch who stole the entire Christmas.
Ryan Detrick, chief market strategist at LPL Financial, points out that the "Santa Claus quotes" have always been a feature of the seasonal dynamics of the market. And this year is likely to see one of the strongest markets.
In the 70 years from 1950 to 2020, the average return on these seven trading days was 1.33%, which was the third highest performance in the same period of the calendar year.
According to Detrick, U.S. stocks have a whopping 78.9 percent chance of rising during this time, which ranks first in any combination of seven consecutive trading days.
Another important point is that if the "Santa Claus quotes" do not appear, that is, the US stock market loses money in these 7 trading days, then the probability of a loss in January is greater.
Detrick quotes a popular adage from Yale Hirsch, founder of the Stock Trader's Yearbook, who said, "If Santa Claus doesn't come, then bears are likely to come."
In 1999, 2005, 2008, 2015 and 2016 there were no so-called "Santa Claus rally"; on the contrary, there were loss gains in each of these years, and the subsequent January returns were also negative.
To be sure, past performance is not a guarantee of future performance, and the market's statistical pattern after the "Santa Claus quotes" shows that the trend market is quite limited.
Mark Hulbert, a columnist at MarketWatch, notes that even with statistics and theory, "santa quotes don't necessarily come up." ”
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