Theories that aim to predict stock market performance range from the complicated and impenetrable to the arcane and simply ridiculous. But some are wonderfully clear: for example, December is usually a good month. In the festive spirit, and not to be taken too seriously, we’ve duly found that the evidence supports the existence of a “Santa Claus Rally”.
Our test of choice, which we may as well call a “Santa Score”, is the result of dividing the average performance each December by the annualized total return over the period. Since there are 12 months in the year, a Santa Score of around one twelfth (about 0.08) would be expected; a Santa Score above 0.08 indicates that December is a better month for stocks, on average.
With an average Santa Score is 0.36, not a single market fails our test. December has been, on average, around four times more profitable than the average month. A Santa Score above 1.00 implies that investing only in December (and doing nothing for rest of the year) is a market-beating strategy; Japan clocked in a remarkable Santa Score of 1.13.
At least in the past few years, December has borne gifts for equity investors. So, pat yourselves on the back and tuck into your Christmas parties! Let’s raise a glass to momentum and seasonality. And hope Santa has noticed.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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