Markets may get jolly when Santa comes to town. Is the Santa Claus rally real or just a festive fantasy?
Most of us grew up believing in Santa until a brutally honest sibling (or ‘friend’) shattered our festive fantasies. If that left you with some trust issues… we can’t blame ya.
But this time, we’re here to tell you about the Santa Claus rally. And before you dismiss it as another urban legend, let’s take a closer look at the numbers.
Cos this might be the thing that restores your faith in Santa… maybe.
The Santa Claus rally is used to describe the trend where markets perform better than average during the last five trading days of December and the first two trading days of January.
Specific AF, we know.
The term was coined by investing whiz, Yale Hirsch, in his book “The Stock Trader’s Almanac” (1972).
He observed that most investors enjoy some stock market gains from Santa during this 7 day period, most years. And while we can’t prove Santa is real, the Santa Claus rally has been recorded time and time again.
Since 1950, the S&P500 has shown increased stock performance in this period (average of 1.3% gain) about 79% of the time (pretty good odds). And when Santa skips his rally, it's often followed by a period of significant economic downturn (like in 2007 before the GFC hit).
More good news - the same pattern is also observed here down under! Between 2015 and 2025 the ASX200 index showed on average 1.69% positive returns during the Santa Claus Rally.
People haven’t pinpointed the exact reason why this happens, but there are some common theories:
✨ Holiday cheer effect: Investors are feeling happy and optimistic during the holiday season therefore, more likely to invest in stocks (which pushes prices up)
✨ Retail investor activity: More people are investing because they receive end of year bonuses or christmas gift money
✨ Business performance: Some businesses (especially retail) tend to make more sales over the holiday season, which improves overall company performance
✨ Tax-loss selling: Investors might sell underperforming stocks in December for tax benefits and buy them back in January (**this only applies in the US and countries where the financial year aligns with calendar year)
✨ Fund manager trading: Similarly, fund managers in the US and other countries are known to switch up their portfolio at year end to improve their fund performance and reporting
**Even as an Australian investor, if you hold international shares that operate on different financial calendars, these seasonal events can still impact your portfolio performance!
Before you jump on Santa’s sleigh to catch the next potential rally, remember that historical performance isn’t always an indicator of future gains.
Just because Santa has gifted investors with positive returns in previous years, doesn’t mean he will this year. Share market performance is influenced by multiple economic factors and 2025 has been an absolute rollercoaster of events (cash rate cuts, Trump tariffs, political unrest to name a few).
Investing in the share market is usually for the long-haul, so consider your long term strategy and goals too. The Santa Claus rally is only 7 days of the year, but investing is really about “time in the market, not timing the market” (cliche but true).
So, as always, understand the risks of investing and consider your personal situation before entrusting your money to Santa!
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