Mitch on the Markets

January 9th, 2023

What Happened to the Santa Claus Rally?

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The so-termed “Santa Claus Rally” says that stocks have a high likelihood of rallying in the final trading days of the year (after Christmas), often extending into the first couple of days of the new year. The statistics on this seasonal pattern vary depending on who you ask and what timeframe is being used. Generally speaking, though, the consensus is that stocks have a greater than 60% chance of going up during this period, based on history.1

But Santa never arrived in 2022.

Instead, U.S. stocks gave up some of the strong gains posted from mid-October through the end of November, ending the year with a whimper.

The Santa Claus Rally Didn’t Happen in 2022

Source: Federal Reserve Bank of St. Louis2

Amongst the many lessons that can be learned from market volatility, the most important lesson is not to time the market.

When Is It the Right Time to Invest?

There is no right time to invest, but there are key forecasts and data available to help you make the most out of 2023. I recommend taking a look at our just-released January 2023 Stock Market Outlook report.

This report will provide you with insights into the new year and key forecasts to consider such as:

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! 

IT’S FREE. Download the Just-Released January 2023 Stock Market Outlook3

The lack of a late December rally has some arguing that it could be a sign of things to come in 2023. Part of the Santa Claus market lore is that a rallying market at year-end, and early in the new year, has been a good predictor of the gains to come. But an investor needs only a look back to 2021 to see the fallacy in this argument. During the 7-day Santa Claus rally period of 2021, the S&P 500 notched a solid +1.4% gain. 2022’s bear market started the next day.

Now that we’re in a new year, some investors are looking for signs that the “January Effect” is taking hold. This seasonal quirk says that stocks – and in particular smaller, value stocks that experienced selling pressure in the previous year – tend to rally in the early days of January. The causes for this supposed rally range from hopefulness in a new year to investors repurchasing stocks following year-end tax loss harvesting.

Next up on the investment calendar is the ‘Sell in May’ adage, which says that investors should ditch stocks at the end of April, wait on the sidelines until Halloween or some arbitrary date in the fall, and then reinvest in time for the aforementioned Santa Claus late-year rally.

Investors shouldn’t buy into any of this.

In my view, the Santa Claus rally, January Effect, and Sell in May are all just market-timing strategies dressed up as seasonal, statistics-driven investment approaches. But any adage or rule that suggests investors should be getting in and out of stocks over weekly or monthly time frames is not only wrong, in my view, but also harmful to an investor’s long-term return potential.

Stocks have delivered annualized returns of over +10% since 1926, which includes the Great Depression, high inflation during the 1970s, the 2008 Global Financial Crisis, and every other bear market and correction over that time. Trying to dance around seasonal quirks likely means missing significant amounts of the upside needed to capture that total return.

In my book, The Little Book of Stock Market Profits, I wrote: “Over the years I have yet to find a successful investor who obtained his or her returns through market timing…Active investment strategies can be developed that outperform the market over time – but engaging in behavior that borders on day-trading, because of what day is on the calendar, is ill-advised.”

In the years since I wrote that book, my opinion hasn’t shifted one bit.

Bottom Line for Investors

In the financial media, I have seen reputable pundits and even financial institutions still leaning into seasonal adages like the Santa Claus rally and the January Effect.But prudent investors should not try to time the market by season or any arbitrary date on the calendar. That’s because stocks don’t follow calendars, which means fundamentals-focused investors shouldn’t follow them, either.

To better guide your investing decisions in the new year, I am offering all readers our Just-Released January 2023 Stock Market Outlook Report. This report will provide you with key forecasts along with additional factors to consider, such as:

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! 

Disclosure

1 Fool. 2022. https://www.fool.com/investing/stock-market/basics/santa-claus-rally/

2 Fred Economic Data. January 3, 2023. https://fred.stlouisfed.org/series/SP500

3 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.

4 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
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