Various sources claim that Santa is immune to the coronavirus, so should investors still expect a Santa Claus rally this year?
We are excited to announce phase three of the Nasdaq Dorsey Wright Model Builder with the launch of Matrix and FSM-based Relative Strength (RS) Testing Service. As part of this launch, we are granting you free access to the service for the remainder of 2020. The tool is designed to help you more easily design, test, implement, and monitor custom models powered by the Nasdaq Dorsey Wright methodology. Please see below for replays of our latest webinar series covering the different aspects of the tool.
11/19/2020: Static Model Builder Demo Replay - Click Here
12/9/2020: Matrix Model Builder Demo Replay - Click here
11/5/2020: FSM Model Builder Demo Replay - Click here
As a result of various sources confirming Santa’s immunity to coronavirus and being Christmas Eve, we studied an old market adage known as the Santa Claus rally. The Santa Claus rally is known to investors as a sustained period in the market that historically brings positive returns, beginning five trading days before year-end and continuing through the first two trading days of the new year. Several variables are speculated to be contributory here, such as year-end tax considerations, decreased institutional volume (thesis being retail investors are more bullish), and year-end bonuses to name a few. Regardless of the rationale, the phenomena has been surprisingly reliable as it relates to the major domestic equity market indices. For example, since the beginning of the 1900s, the Dow Jones Industrial Average returned positive figures over 74% of the time. Since 1957, the S&P 500 has produced positive returns 73% of the time, and the Nasdaq Composite since 1972 has produced positive returns 70% of the time.
Now, after a year of stellar returns can we really expect Santa to visit the ungrateful and greedy investors of the world? From a historical perspective, the answer is yes. In fact, after the market (whether SPX, NASD, or DJIA) returned 10% or more, the percentage of positive returns actually increased for our study, as shown below. Furthermore, on some occasions, we note higher average returns.
However, an observation running against the grain of the previous is the negative slope of these observations, meaning that we are seeing the Santa Claus rally generally decrease in magnitude of returns as of late. There are no free lunches or guarantees in the stock market, and arbitrage is hard to come by, so it will be interesting to watch the relevance of the old market adage in years to come.
