The Santa Claus Rally which actually refers to the the week between Christmas and New Year's has broadened its definition in recent years. It now is referred to much more often in the weeks leading up to Christmas. Will we get the rally this year or has Santa come early?
In the past 8 years or so, November and December have been extremely bullish and about 65% of the time stocks advance the week following Christmas. There are several factors that contribute to the Santa Claus rally including year end tax considerations, the tendency of people to fund their IRAs and 401K's for the start of the new year, financial institutions looking to be fully invested for the new year, and the anticipated January effect which is the tendency of stocks to rise in January. However, the "January effect" has become so anticipated that in recent years it has not really materialized.
With the Dow Jones making new highs on an almost daily basis and the other indexes following behind, I can only wonder if a correction is not in order. Last week it was a bit concerning with good news coming out, strong futures in the morning and then a drop in the stock market. This is usually a sign of a pullback. I really don't expect a large pullback, since the market has also been shrugging off seemingly bad news, usually recovers from early drops and has consistently been closing off of the lows However, I am personally hoping to add to my positions at lower prices.
I guess we will have to wait and see if the market continues it's strong year end advance, or if Santa Claus (the rally) has come early this year.
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