Will Santa Or The Grinch Visit Wall Street This Holiday Season?

An old Wall Street maxim states: “If Santa Claus should fail to call, bears may come to Broad and Wall.” As defined by the Stock Trader’s Almanac, the Santa Claus indicator consists of the current year’s last five trading days and the new year’s first two days. The Santa Claus Rally period runs from Friday, December 23, through Wednesday, January 4.

Despite this well-turned phrase, our analysis shows that Santa seems to have limited forecasting ability. In the twelve years with a negative S&P 500 return for the Santa Claus indicator, the market was down only five times in the following year, a hit rate of almost 42%.