On Dec. 24, 1948, the U.S. Air Force issued a startling communique.
The armed forces branch charged with defending the nation’s skies claimed that early-warning radar to the north had detected “one unidentified sleigh, powered by eight reindeer, at 14,000 feet (4,300 meters), heading 180 degrees.”
This was the origin of the holiday-themed program. The North American Aerospace Defense Command, Norad, simulates tracking Santa Claus as he takes off from the North Pole on his global mission to deliver presents to children on Christmas Eve.
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The program became an annual event in 1955 and continues to this day. The Santa tracker made its internet debut in 1997 and even survived the Covid-19 pandemic, although the 3D depiction of Kris Kringle had him wearing a mask for a couple of years.
And it’s not only the Air Force searching the wild blue yonder for Old Saint Nick. Investors are also out there looking for any signs of the legendary Santa Claus Rally.
The Santa Claus rally is a phenomenon wherein stocks rally in the final five trading days of the current year and the first two days of the new year.
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What is the Santa Claus rally?
The term describes a rise in stock prices during the last five trading days in December and the first two trading days in the following January.
The Santa Claus Rally itself was first recorded by Wall Street legend Yale Hirsch in his “Stock Trader’s Almanac” in 1972. He famously said, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
A few years ago, the “Stock Trader’s Almanac” compiled data during the 73 years from 1950 through 2022 and showed that a Santa Claus rally occurred 58 times —about 80% of the time — with the S&P 500 averaging a gain of about 1.4%.
Will Santa reward investors with a rally in 2024?
Stocks took a hit earlier this week due to the Federal Reserve’s hawkish messaging following its final rate cut of the year.
“Markets have a really bad habit of overreacting to Fed policy moves,” said Jamie Cox, managing partner for Harris Financial Group. “The Fed didn’t do or say anything that deviated from what the market expected— this seems more like, ‘I’m leaving for Christmas break, so I’ll sell and start up next year.'”
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The good news, Cox added, is that this 10-day selloff should lay the path for a Santa Rally leading into next week.
On Dec. 20, the Bureau of Economic Analysis’s PCE Price Index report — the Fed’s preferred inflation gauge— showed that core prices in November rose at an annual rate of 2.8%, matching the October reading and Wall Street’s consensus forecast.
Adding to the mix is the threat of a government shutdown after the House of Representatives rejected President-elect Donald Trump’s new plan to fund operations and suspend the debt ceiling.
TheStreet Pro’s James “Rev Shark” DePorre noted that government shutdowns have occurred before, and while they have caused short-term uncertainty, they are always resolved and quickly forgotten.
“The problem for the market is that it is a convenient excuse for some investors to lock in gains from a good year and to go enjoy the holiday before they start fresh in 2025,” he said.
DePorre said he continued to believe that conditions for a year-end Santa Claus rally are improving. He noted that there is more downside pressure, which creates the potential for a snapback, and many small-caps and secondary names are now deeply oversold.
“There are some folks who are giving up on the idea of a Santa Claus rally, and that is a good thing,” DePorre said in his Dec. 19 column. “The best rallies are those that are not anticipated. The more likely that market players think a rebound might be, then the greater the likelihood it will occur. The hard part is getting the timing right.”
“My best advice is to have a shopping list and be ready to move fast when the price action improves,” he added.
Almanac’s Hirsch is bullish about 2025
In addition to the Santa Claus Rally, Yale Hirsch also developed the January Barometer, which states that if the S&P 500 goes up in the first month of the year, the trend will continue until the calendar runs out of pages.
Jeffrey Hirsch, Yale Hirsch’s son and the editor-in-chief of the Stock Trader’s Almanac, recently shared his thoughts about the stock market with TheStreet’s Conway Gittens.
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Hirsch, CEO of Hirsch Holdings, said he was bullish about 2025.
“The post-election year used to be a negative year for the market,” he said.”It used to be one of the worst ones since World War Two. It’s been one of the better ones since 1985. It’s been the best year of the four-year cycle.”
Hirsch said that by combining the Santa Claus Rally with the January Barometer and the January Effect, you get the January indicator trifecta.
“The January Effect is the tendency for small caps to outperform large caps in January,” he said. “The research in the Almanac shows us that most of that happens the last two weeks or the last half of December.”
“When all three hit, all are positive,” he said. “The market’s up 90.6% of the time, 29 out of 34 years, 17.7% on the S&P average gain. What derails that could be something systemic or some disappointment with economics.”
In years when the Santa Claus rally has failed to materialize, Hirsch said the markets were either flat or bearish “or at least times when you could buy stocks cheaper during the year.”
“I think something geopolitically or even politically, domestically could rock the markets,” he said. “But other than some disappointment out of the market-leading companies, the [Magnificent Seven megacap tech companies], or something that lasts long, I don’t see much that’s going to derail it.”
If something should go off course, Hirsch said “we may have to go back and figure out what derailed it with a little bit of hindsight.
“But if we see all three of those down, I’ll start getting a little bit less bullish,” he said.
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