Is The Santa Claus Stock Market Rally Real? Here Are The Numbers

December is historically one of the best months of the year for the SPDR S&P 500 ETF Trust SPY. However, most of those historical gains have come in the second half of the month in a seasonal trade known as the Santa Claus Rally.

The official period of the Santa Claus Rally is the final five trading days of December and the first two trading days of January. This year, the Santa Claus Rally period begins on Thursday, Dec. 24.

The S&P 500 has traded higher during this seven-day stretch in 77.9% of years. In addition, the S&P 500 has averaged a 1.33% gain during this period, making it the second-best seven-day stretch of the year for stocks, according to LPL Financial.

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“Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays — or the holiday spirit— the bottom line is that bulls tend to believe in Santa,” LPL Financial Chief Market Strategist Ryan Detrick said this week.

Recent Rallies: Like other seasonal trading trends, the Santa Claus Rally is not a guarantee. But the S&P 500 is on a five-year winning streak during the Santa Claus Rally period. Here's a look at the Santa Claus Rally returns from the past five years:

• Santa Claus Rally 2020: +0.6%
• Santa Claus Rally 2019: +0.3%
• Santa Claus Rally 2018: +1.3%
• Santa Claus Rally 2017: +1.1%
• Santa Claus Rally 2016: +0.4%

However, Detrick pointed out that the years in which the S&P 500 drops during the Santa Claus Rally period, it has been bad news for the stock market in January.

Going back to 1993, there have been six years in which the S&P 500 traded lower during the Santa Claus Rally period. In those six years, the S&P 500 finished the month of January in the red five out of six times and finished the entire following year in the red four out of six times.

Benzinga’s Take: Seasonal trading trends are extremely unreliable on a year-to-year basis. But there are a lot of unusual stock market dynamics in play at the end of December, including end-of-year window dressing, tax loss trading and rebalancing.