Perhaps the best known seasonal event on Wall Street is the "Santa Claus Rally"
The SCR usually occurs from just before Christmas Day to just after New Year's Day.
Investors consider price gains during this period as Santa's gift to equity markets. There are several factors that influence the action including; upbeat investor sentiment, light trading volumes, encouraging economic news, Bullish reports on stocks and commodities, expectations for strong Q-4 earnings triggered by news of strong consumer Holiday Season spending, and the investment of year-end bonuses. Add to that some equities, that have over-reacted to tax loss selling pressures, frequently bounce off their lows on bargain hunting.
The Santa Claus rally is often the strongest 3 week period of the year for US equity markets.
Thackray's 2012 Investor's Guide notes that average return per period for the S&P 500 Index from 15 December to 6 January during the past 61 periods was 2.0% percent.
Profits were realized in 46 of the past 61 periods.
Returns from the NAS Composite Index were Jollier. Average return during the past 40 periods was 3.0%.
Profits were realized in 31 of the past 40 periods.
The conditions for this year's Santa Claus Rally this year are favorable
Key US equity indices began to recover on, Wednesday, 21 December (a Key reversal day) and followed by a Dragon Fly Doji and a series of favorable economic reports that came out on Thursday..
Some Key economic influences in play this year include stimulative fiscal and monetary measures and the extension of the payroll tax cuts.
Added to that, portfolio managers holding large cash positions during most of Y 2011, will be chasing performance at year end by committing their cash positions.
Also, end-of-year tax loss selling pressures by individual investors following a year of lower stock prices in Y 2011 will trigger buying by the bargain hunters adding to the Good Cheer.
There are any number of investment choices available with a history of outperforming the market during the year-end rally period, and the best performing sectors include Small Caps, Utilities, Home Builders, Metals & Mining and Healthcare, as follows;
iShares Russell 2000 Index (Symbol: IWM $72.26), Utilities SPDRs (Symbol: XLU $34.54), SPDR S&P Homebuilders Index (Symbol: XHB $16.13), S&P Metals & Mining (Symbol: XME $48.88), and Health Care SPDRs (XLV $33.41). Equivalent ETFs, that trade in Canadian Dollars, include iShares Russell 2000 Index Canadian Dollar Hedged (XSU $15.64) and BMO Equal Weight U.S. Health Care Hedged to CAD Index (ZUH $16.69).
Paul A. Ebeling, Jnr.