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The odds of the stock market rising are stronger over the next six trading sessions than they are at any other time of the year.
This period, encompassing the period beginning after Christmas and lasting through the first two trading sessions of January, is the only Santa Claus Rally that enjoys strong statistical support. (In defining the Santa Claus Rally this way, I am following the lead of the Stock Trader’s Almanac.) To be sure, you shouldn’t risk your entire retirement portfolio on a short-term bet. But if you have a separate portfolio of play money, you may want to consider betting on a higher market between now and Jan. 3, 2024.
Read: Chasing the Santa Claus rally? Look out below!
Many, perhaps most, investors don’t want to think about the markets over this period, choosing instead to spend time with family or reflecting on the year that’s coming to a close and the new year that’s about to begin. That’s undoubtedly one of the reasons why this seasonal pattern, at least so far, hasn’t disappeared—unlike most other patterns that, once discovered, get discounted away as too much money tries to exploit them and thereby kills the goose laying the golden egg.
If you still want to try your hand with a short-term bet in coming days, the odds are definitely in your favor. Of the 127 year-end Santa Claus Rally periods since the Dow Jones Industrial Average
DJIA
was created in 1896, it has risen in 98 of them—77% of the time, in other words. Its average gain across all 127 periods was 1.6%.
That’s far better than the odds that apply the rest of the year: Among all periods of comparable length since 1896, the stock market rose 56% of the time, gaining an average of 0.19%.
These differences are significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine. Note carefully, however, that statistical significance doesn’t amount to a guarantee. In any given Santa Claus Rally period, there’s still a one-in-four chance that you’ll lose money.
Might there be better odds of the market rising in this year-end period, given that stocks have performed so well this year and some of the major averages have just reached an all-time high? I don’t think so. Consider those years since 1896 in which the DJIA was posting a year-to-date gain through Christmas: In those years’ Santa Claus Rally periods, stocks rose 79% of the time—statistically indistinguishable from the 77% odds that exist across all years.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
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