Have you heard of the concept of a “Santa Claus Rally”? When the stock market goes up in the last week of December and stays up for a few days in the beginning of January, this phrase is used.
However, we all know that it is an uphill task to determine a market rally. hat makes it different? This article tells you everything you need to know about the Santa Rally in the Indian stock market, including whether it’s real or not.
What does the Santa Claus Rally mean?
In the US, stock prices tend to go up during the last week of December and the first two business days of January. This is where the idea of the “Santa Claus Rally” came from.
At this point in time, the market is feeling good and there is less fluctuation. One time this happened was in December 2008, when the S&P 500 went up more than 7%. There have been times, though, when the market went down during that time.
So, you could say that the Santa Claus gathering is a fun idea that adds to the already happy holiday season. Because of this, it’s not just a market trend; it’s also a part of holiday culture.
Is the Santa Claus Rally Real?
Based on what we know about the past, the Santa Claus Rally is a real event. But neither investors nor analysts can say for sure which year the rise will happen.
“Santa Claus rally” was created by Yale Hirsch, the author of the Stock Trader’s Almanac, who found in 1972 that market gains were very high in the days after Christmas and the first few days of the New Year.
He found that since 1950, the S&P 500 had gained an average of 1.5% by the end of the year. Also, the S&P has finished the year up 76% of the time in the last 45 years, which shows that the rally is real.
Factors for Santa Claus Rally
There’s no promise that this rally will happen every year, but there are some things that make it more likely:
- During the holidays, investors are in a good mood, which makes them optimistic about the future. This makes them buy more.
- Not many people put their Christmas and New Year’s gifts into the stock market, which makes it do better before January.
- Large institutional buyers usually take a break between Christmas and New Year’s, so trading isn’t very busy. This gives small owners more power, and these investors are usually more positive.
- The tax-loss harvesting method is used by traders to sell their stocks at a loss at the end of the year. When the new year starts, they buy these stocks back. This will automatically push up the strong stocks because of momentum.
- Investor trust can be boosted by signs of a strong economy and hope for the coming year.
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When does the Santa Rally take place in Indian markets?
People’s good feelings about the US markets could spread to the Indian markets as well. Because of this, the good mood caused by the Santa Claus rise in the US has a hugely positive effect on Indian markets.
The same things that make investors happy and the holiday spirit could lead to a rise at the end of the year in the Indian markets.
Nifty 50 has given an average return of 2% during the seven days of the Santa Claus rise over the past 21 years, from 2001 to 2002.
Looking back at past statistics, Nifty 50 has given a return of 2.2% in the last 15 days of 2020. In 2019, it made 1.7%, and in 2018, it made 0.5%. Based on these numbers, we can say that the Santa gathering has some meaning in India as well.
Is There Always a Santa Rally?
No, there’s no promise that the Santa Claus gathering will happen every year. The rally is affected by a lot of things, such as the market, economic data, outside forces, and so on.
Each year is unique, and the way the market works changes. Lots of experts use this Santa Claus rally as a starting point to guess how the next year will go.
If you want to make smart investments, you should know how the market changes at different times of the year. It’s better to come up with different ways to handle risk for different scenarios and invest based on how the market is feeling at the time.
Trading Strategies for the Holiday Season
The holidays are a great time to make trades that will pay off. When dealing, you should be careful with false breakouts and low volumes, though. Here are some ways to trade during the holidays:
Position Size: Holidays are a time of high volatility, so it’s best to lower the size of your positions to avoid losing a lot of money.
It’s important to keep up with the latest market news, economic data, and other things that can help you make better choices.
Diversification: Spread out your risk this holiday season by not putting all of your money into one stock or area.
This holiday season, if you want to invest in stocks, come to our website. Based on careful research, we’ve put together a list of stocks that will help you make money over the long term.
Verdict
We can say that the Santa Claus gathering is real, but we can’t say for sure. So, don’t try to time the market. Instead, spend wisely based on how much risk you are willing to take.
There’s no need to trade the Santa Rally if you want to control your risk. You should know how the market moves anyway.
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