The so-called Santa Claus rally is around the corner, a short boost in stocks that investors have enjoyed for decades.
The stock market tends to have unusually strong performance during the final five trading days of the year and the first two tradings days of the new year, which Wall Street nicknamed “the Santa Claus rally.” The S&P 500 has posted a 1.3% gain on average since 1950 during those periods, according to the Stock Trader’s Almanac, which helped define the period.
It has worked for the most part in the last 10 years. The S&P 500 has only had two declines, in 2014 and 2015, during those seven trading days in the past decade. This year, the record-setting rally has pushed the S&P 500 over 3,200 for the first time ever with a good chance at scoring the best annual return in as many as 22 years.
“This isn’t simply an ephemeral ‘Santa Rally’ without any fundamental underpinnings,” said Adam Crisafulli, founder of Vital Knowledge, in a note on Thursday. ″The fact Trump is coming off a very strong month of news (notwithstanding impeachment) is another tailwind for this tape.”
Investors have turned much more bullish in recent weeks after the U.S. and China announced they have reached a “phase one” trade deal. The Trump administration also inked a new North American trade agreement. Optimism is building that the global economy will recover from a slowdown and avoid a recession as economic data in the U.S. and overseas began to improve.
December typically has the tendency to finish strong, according to Ryan Detrick, senior market strategist for LPL Financial. Based on the historic performance going back to 1950, the majority of December’s gains in the S&P 500 have tended to happen towards the end of the month, Detrick said.