Wall Street rebounded on Thursday, with the S&P 500 recovering from its worst day since September. The Dow gained 0.87%, the Nasdaq rose 1.26%, and the S&P 500 added 1.03%, bringing it within 1% of its closing high and 1.5% of its intraday record.
What Happened: The year-end surge that propelled the Dow Jones Industrial Average and Nasdaq 100 to historical peaks earlier this week is anticipated to continue into the next week, reported Business Insider.
This rally is attributed to the stock market’s propensity to climb during the last five trading days of the year and the first two of the new year, a period known as the Santa Claus rally.
This trading phenomenon was identified by Yale Hirsch, the creator of the “Stock Trader’s Almanac,” in 1972.
“The Santa Claus rally is real,” Stephen Suttmeier, Bank of America’s technical analyst, said in a note earlier this month.
“This period from late December Presidential cycle year three into January year four is also bullish with the S&P 500 up 70% of the time on an average return of 0.90%,” Suttmeier said.
The Santa Claus trading window for this year commenced on Dec. 22 and will conclude on Jan. 3.
Why It Matters: Historical data since 1950 shows that, during the Santa Claus trading window, the S&P 500 has recorded an average return of 1.3% and has been positive 79% of the time, as per Ryan Detrick of Carson Group.
Furthermore, when stock market data dating back to 1928 is considered, the average gain during the Santa Claus trading window strengthens to 1.6%, according to Bank of America. If this gain materializes this year, it could push the S&P 500 to new record highs.
Yet, should a Santa Claus rally not materialize in the next seven trading days, it could serve as a cautionary signal for investors, indicating a potentially weak start for stocks in the coming year.
“If Santa should fail to call, bears may come to Broad and Wall,” cautioned Hirsch, referencing the New York Stock Exchange’s location at the intersection of Broad and Wall Streets.
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