Will Santa Bring Us A Rally In Stocks This Year?

One thing that I’ve always found funny about this business is all of the little nicknames and terms that get used. Here are some of my favorites:

Dead Cat Bounce – A temporary rise in stock prices after a big drop. Generally caused by day traders who gobble up beaten down stocks to make some short-term money.

Whale hunting – When a stock broker is attempting to land a big money client.  

A Contagion – When financial instability in one market sector is leaking into other market sectors. Think of the banking sector having problems, then that same problem begins to affect the energy sector.

Perhaps the most widely used one is the so-called ‘Santa Claus Rally.’ According to Investopedia.com, a Santa Claus Rally is “a sustained increase in the stock markets that occur in the last week of December through the first two trading days in January.” So, for 2018, the range of dates would start Monday December 24th and end January 3rd,2019.

The Santa rally should be on all investors wish list each and every year, but for 2018 it should be atop all investor’s Christmas wish list. It’s been a wildly volatile last few months on Wall Street. And look, I totally understand why. For all intents and purposes we are in a trade war with China, rising interest rates have thrown a wet blanket on an economy that’s trying hard to grow, none of us know what Trump is going to say (or tweet) on any given day, and oil prices just took a dramatic plunge in October (they still haven’t fully recovered).

With all that said, it sort of begs the question; are we going to get a Santa Claus rally this year? I really wish I could tell you with some degree of certainty. Unfortunately, I can’t. I’m not a fortune teller. Nor is my last name Nostradamus. Or was that his first name? Apparently, I’m not much of a historian either.

I’m not going to sit here and make predictions for you because that would be a waste of both of our time. So, what I’ll do instead, is give you a few things to look out for that might spark a Santa rally this year:

  1. If the ‘trade war’ with China gets resolved, I could see it sparking a rally.
  2. If the Christmas shopping season data (how much we collectively spent on presents as a nation) comes out much better than expected, I could see it stimulating a Santa rally.
  3. If investor sentiment improves significantly (people’s attitudes towards the stock market gets more positive), that might inspire a year end rally.

Will we end up with a Santa Claus rally in 2018? Only time will tell. With the way 2018 has gone thus far, I would say that anything is certainly possible. Wouldn’t you agree?