Investment Management | Will The Santa Clause Rally Happen This Year | Stock Talk Podcast
I am Chris Perras, Chief Investment Officer at Oak Harvest Financial Group. We are an investment management and retirement planning advisor located in Houston Texas. Welcome to our November 26 YouTube, stock talk “keeping you connected to your money”.
Well, the holidays are upon us and its time to talk Santa. Whether you believe in the man or not, or celebrate the XMAS holidays or not, historically, the positive seasonal effect on the overall stock markets is a very real historical phenomenon, statistically speaking. Given, our overall 2022 market outlook, and given we are filming this segment before the Federal Reserve met earlier this week, we are not going to try to predict whether this anomaly in the calendar continues this year. And given our longer-term investment focus for clients, we won’t be tactically trading around whether it happens again over the next 2 weeks.
However, our investment team did want to put out some data to educate our clients and viewers onto this tactical trading strategy and its historical pattern. And viewers please recall, that year to date, against the calls from unprecedented market action, it’s been a very normal first year Presidential cycle in the stock markets.
So here is the data. While many strategists talk about the strong seasonal tendencies for the month of December, of the 12 months in the year it has the highest percentage chance of being positive, as it is up almost 75%, or 3 out of 4 years. Few strategists break it down and discuss how December, by itself, is a lone, unique month whose intra-month trading pattern is exactly opposite the 11 other months out of the year.
What do I mean by this? Unlike all the other month, December shows much stronger returns over the last 10 trading days of the year versus the first 10 days. According to Merrill Lynch data, since 1929, that’s for over 90 years, the first 10 trading days of December have basically averaged a zero cumulative return. The first half of December is a big zero. However, the last 10 days of December are much stronger averaging almost a +1.25% return into year end. Hence the phrase the “Santa Claus rally”.
Additionally, the Santa party usually hangs around into early January as the first 10 trading days of January have had an average a return of about .75%, or 3 quarters of a percent. So cumulatively, the 20 days return from the second half of December through the first 10 of January has averaged 2%. For those of you tactically inclined, that’s a pretty nice, expected return with pretty good odds.
Many viewers will ask, well if it’s so well researched and advertised, why does it keep working, given the efficient market thesis. That’s a great question with no perfect answer, however I will give you some recent data why it is more likely than not to happen again this year.
We have discussed investor sentiment and positioning many times over the last 3 years in our podcasts. Well, the first data set, published by AAII, that data set being individual investor sentiment, hit its highest bearish reading for all of 2021 during the post-Thanksgiving, early December selloff. Here’s the chart for viewers. Recall, the investment team at Oak Harvest follows this data, as it tends to be a great contrary indicator on the markets next move. Investors were nearing euphoric levels in mid-November near the markets short term top. And then, in a matter of 2 weeks, they were nearing max fear in early December after the market had dropped a little over 5%. So much for buy low and sell high?
The second data set I monitor is the real time cost of insuring your portfolio against declines. I have spoken of this cost multiple times over the last 3 years. Well listeners, on Friday December 3rd, in the depths of the margin calls, forced selling and panic, what did our insurance indicator read? Well, it gave nearly the same panic reading as Friday, October 30th, 2020, Pre-Presidential election. Longer term listeners might recall that being the low for the last 12 months and the day we released our podcast titled “Waiting no more, this is how early bull markets look”. Will we all look back on December 3rd, 2021, in 10 or 12 months as the markets low for the subsequent 12 months? I don’t know, but I do know that the reading tells us that investors are no longer euphoric and bullishly positioned for a year end Santa Claus rally.
So, if pressed on our opinion of a coming year end Santa Claus rally, I would venture a guess, that whether you believe in the man, the myth, or the legend, that the odds are high, that Santa delivers his gifts on time, to close out what has been by Oak Harvest forecasts, for over 12 months, a very normal, profitable, and Merry year.
Viewers, give us a call here at Oak Harvest and ask to speak to one of our advisors. Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040; we are here to help you on your financial journey into and throughout your retirement years.
Many blessings, stay safe, and have a great weekend.
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.