Market Overview

Signs Pointing Toward Another Santa Claus Rally In 2013

Signs Pointing Toward Another Santa Claus Rally In 2013

There has been debate this year, as always, about whether a ‘Santa Claus rally’ would happen. 

In fact, the seasonal anomaly in which abnormally positive returns take place in the market during the month of December has happened 80 percent of the time over the past 20 years.

This year, some were questioning whether it would happen or not. 

Although holiday related optimism, solid retail sales, and positive housing market reports have pointed toward a rally, market returns through Dec. 16 were only 1.47 percent – mostly thanks to profit-taking on the part of investors.

Others, pointing to positive signs on the part of U.S. stock futures opined that a 2013 Santa Claus rally might be inevitable.

The S&P 500, Dow Jones industrial average, and NASDAQ all moved higher in pre-market trading, with NASDAQ, in particular, getting a shot in the arm from Apple, which announced a big sales deal with China Sunday.

Related: Will Stocks See A Santa Claus Rally?

In addition, the head of the International Monetary Fund, Christine Legarde, struck a positive note on U.S. economic recovery, saying Sunday on NBC, "We see a lot more certainty for 2014."

Lagarde pointed to the Congressional budget deal and the fact the Federal Reserve had injected some certainty into its monetary stimulus policy as reasons supporting her contention the IMF would raise its U.S. economic forecast.

According to Jim Cramer’s The Street, the markets have already “confirmed a ‘Santa Claus rally.’” 

Among the signs noted were increased consumer spending which caused the U.S. economy to expand at its fastest pace since late 2011, the Standard & Poor’s 500 index posting its best week since Oct. 18, and the afore-mentioned Federal Reserve decision to begin tapering economic stimulus.

In addition, the Commerce Department said Q3 2013 gross domestic product rose 4.1 percent year-over-year, beating the previous results of 3.6 percent. Thomson Reuters said analysts it contacted had expected a gain of just 3.6 percent.

Randy Frederick of Charles Schwab told The Street, "It's an endorsement that the economy is stronger." 

Frederick added, "The reaction that we got on Wednesday and the follow through [Friday] ... confirms that."

Bespoke historical analysis would seem to indicate that when the ‘Santa Claus rally’ happens, it lasts until the first week of the New Year. According to Bespoke, historically the Dow has advanced about two percent from now until the first week of January.

Cam Hui, a portfolio manager at Qwest Investment Fund Management Ltd., cautioned however that all this could lead to a correction sometime in early 2014. Hui said Q4 earnings would be among the factors holding a key to stock prices in January and February 2014.

At the time of this writing, Jim Probasco had no position in any mentioned securities.


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