Will Stocks Santa Claus Rally?

After a strong rebound in October and November, the S&P 500 logged its second losing week in a row, falling 2.75%. Below is a chart of the S&P 500 for 2022. You can see the 2-month rally in October and November and the recent string of weakness. The leading index is down 20% on the year.

                                                                     chart from mycharts.com

The weekly loss was driven by three factors:

  • Worries about higher interest rates.
  • Worries about a recession in 2023.
  • Short-term profit taking after November gains.

What’s up with interest rates? The federal reserve said it will continue raising interest rates through 2023 to 5.1%, a marginally higher level than expected by the Street.

Will we have a recession in 2023? With the fed signaling an aggressive tone on interest rates, markets became more worried about a recession in 2023.

Here’s my quick take: 2022 has been a terrible year for stocks and bonds. We already had a recession in 2022 with two consecutive quarters of negative GDP growth. That’s been the definition of a recession for 100 years so not sure why that all the sudden that changed in the last nine months.

I’m expecting plenty of volatility in 2023. But the U.S. is going to have two recession in 18-24 months? And two consecutive years of big losses in the stock and bond markets? I don’t buy it. If we see one quarter of negative GDP growth I expect the Fed to blink, and do a hard pivot on rates.

2023 doesn’t start for another two weeks. In the meantime, here’s a reason to be optimistic on stocks in the last two weeks of 2022.

Will we Get a Santa Claus Rally in 2023?

The Santa Claus rally refers to the time around the holidays when stocks have a history of doing well. Here are some more details from Investopedia.

  • The Santa Claus rally refers to the tendency for the stock market (specifically, the S&P 500) to rally over the week leading up to Christmas (Dec. 25).
  • Theories for the Santa Claus rally’s existence include increased holiday shopping, optimism fueled by the seasonal spirit, and institutional investors settling their books before going on vacation.

Here are some good stats on the Santa Claus Rally from Wikipedia.

A Santa Claus rally is a calendar effect that involves a rise in stocks prices during the last 5 trading days in December and the first 2 trading days in the following January., According to the 2019 Stock Trader’s Almanac, the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969. Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.

I’m not expecting any huge gains in the short run. But it would be nice to see stocks continue to stabilize and even rally into the end of the year. It would give our portfolios a little boost into the end of the year.

I’ll be back next week with another updates have a great day!


Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.