Investors are always looking for that potential power surge in the markets in December, and when that happens, it means the Santa Claus Rally has come to town. Not seen since 2013, this boost is a big tell about the state of our current economy.
What is a Santa Claus Rally?
The Santa Claus Rally is a surge at the end of the last quarter of the year, typically seen as a rise in the price of stocks between Thanksgiving and New Year’s Day. There are several causes for the Santa Claus Rally, including tax considerations, excitement and buzz around Wall Street, people investing sidelined money and – in this year’s case – administration changes. Many companies and traders tend to prepare their end-of-year performance and execute additional trades in an effort to inflate their earnings and diversify their portfolios.
The Man in the Red Necktie
The 2016 Santa Claus Rally, in combination with the election, has already helped launch the Dow Jones to a record high. The sleigh of this year’s Santa Claus Rally is helmed by no other than Donald Trump. Big business is optimistic, and investors and traders alike hold high expectations for the Trump administration’s pro-business policies.
Santa Claus Only Comes Once a Year
Typically, investors sell losing stocks in December to take advantage of Capital Losses on their upcoming tax filing, which can cut Santa’s fun short. While the Santa Claus Rally may only come once a year, many other rallies occur throughout the year. One such rally may come as soon as January when investors that have been sitting on their hands jump into the market with their new money from bonuses, investments and post-raise paychecks.
Many analysts believe the post-election boom will only compound and accelerate the Santa Claus Rally. Either way, with all the excitement around the positive year-end, the investing markets appear to be poised for a jolly holiday season.