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Mark Hulbert
Dec. 22, 2010, 12:01 a.m. EST
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By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” After taking Santa's name in vain for over a month now, the stock market is finally about to enter the seasonally-favorable period that honestly can use the name "Santa Claus Rally."
This seasonally-favorable period doesn't last very long, however. In fact, new research suggests that it primarily consists of just the last five trading sessions of December.
Nevertheless, because this rally has been most pronounced historically in countries that celebrate Christmas and/or have the highest percentage of its citizens who are Christian, rallies that occur during this period can genuinely be called a "Santa Claus Rally."
SmartMoney's AnnaMaria Andriotis describe some common hoaxes to dodge this season.
Those at least are the conclusions I draw from this recently-completed study, conducted by Ben Jacobsen, a finance professor at Massey University in New Zealand, and Cherry Zhang, a Ph.D. student at the same institution. (Click here for a link to their study.)
Among the fascinating patterns that the researchers found:
Year-end seasonal strength became more pronounced in the U.K stock market around the time that Christmas in that country became a public holiday (around 1835). Christmas didn't become a public holiday in the U.S. until around 1870, and "” sure enough "” that's when year-end seasonal strength begins to be particularly pronounced in the U.S. stock market.
This year-end strength tends to be stronger in countries "where Christianity is strong and/or where people tend to celebrate Christmas." This definitely suggests that there is something about Christmas that is leading to this seasonal stock market strength.
Prior to the last few decades, this year-end strength in the stock market tended to persist into much of January. It may be, therefore, that this "Christmas" effect is the source of the well-known January Effect. If so, this new research resolves what otherwise has been the enduring mystery surrounding why the January Effect exists.
Though the January Effect has become less pronounced in recent years, stock market strength over the last five trading sessions of December remains strong.
In providing these fascinating insights to age-old questions, however, this new study raises at least one new one that, at least for now, must remain un-answered: Why would the widespread celebration of Christmas and/or its becoming a public holiday lead to a stock market rally?
We can only speculate, of course. Might it be that the holiday leads to abnormal amounts of consumer purchases, thereby boosting the economy? Possibly, though then we'd need to know why savvy traders aren't bidding stock prices up in advance of the post-Christmas period.
In any case, however, insofar as this year lives up to the historical pattern, the seasonal winds between now and year-end should be blowing particularly strongly in the stock market's sails.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
The initial reaction to the net neutrality plan is seen as positive for content providers like Netflix, but Comcast and others are unlikely to sit still for long
3:42 p.m. Dec. 21, 2010
"Mark Hulbert: The real Santa Claus rally's about to begin http://on.mktw.net/gmUH30" 12:44 a.m. EST, Dec. 22, 2010 from MktwHulbert
"Mark Hulbert: Will rising interest rates sabotage stocks? http://on.mktw.net/ftCPME" 12:27 a.m. EST, Dec. 21, 2010 from MktwHulbert
"Mark Hulbert: Sentiment has taken turn for the worse http://on.mktw.net/h2xFQh" 12:18 a.m. EST, Dec. 17, 2010 from MktwHulbert
"Mark Hulbert: Insiders are headed for the exits http://on.mktw.net/exT3fq" 3:27 a.m. EST, Dec. 15, 2010 from MktwHulbert
"Mark Hulbert: Window dressing creates opportunities http://on.mktw.net/ehhSUc" 11:21 p.m. EST, Dec. 13, 2010 from MktwHulbert
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