Was Santa Good to Wall Street This Year?

Mark Hulbert MarketWatch January 4, 2011

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Mark Hulbert

Jan. 4, 2011, 12:01 a.m. EST

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By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) "” With the holiday season now officially history, it's time to ask: Was Santa good to Wall Street this year?

This turns out to be more than an idle question, believe it or not.

According to a popular saying on Wall Street, "if Santa should fail to call, bears may come to Broad & Wall." In other words, the number and size of Santa's gifts to Wall Street supposedly tells us something about what the stock market has in store.

If so, there is cause for concern: Based on the definition employed by the Almanac Investor Newsletter, the Santa Claus Rally period this year has been a below-average one for the stock market.

/quotes/comstock/10w!i:dji/delayed DJIA 11,686, +15.17, +0.13%

That period, according to this advisory service, encompasses the last five trading days of December and the first two of January. With one day left in that period, the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 11,686, +15.17, +0.13%) was up 0.8%. That's less than half of the historical average gain of 1.7% (based on all comparable periods back to the late 1896, when the Dow was created.)

And notice, furthermore, that even this modest 0.8% was exclusively a function of the stock market's sizeable gain on the first trading day of 2011. Without it, the stock market would be posting a loss for this year's Santa Claus Rally period.

So, to the extent Santa visited Wall Street this year, he was rather stingy in handing out presents.

Nonetheless, I am not so sure that these results, in and of themselves, doom the market in 2011.

Consider a study I conducted of the Dow over the last 115 calendar years, in which I searched for correlations between the market's performance during the Santa Claus rally period and how it performed subsequently.

I came up empty, as you can see in the accompanying table.

Dow during Santa Claus Rally period performs... % of time Dow is UP over the rest of the year % of time Dow is DOWN over the rest of the year Average Dow gain for the rest of the year Above average 61% 39% 5.7% Below average 65% 35% 7.5%

Consider the first row in the table, which reflects those years since 1896 in which the Dow during the Santa Claus Rally period performed better than the historically average rate of 1.7%. As you can see, the Dow through Dec. 31 of those years proceeded to go up 61% of the time. Overall during those years, it gained 5.7% on average.

In contrast, following times in which the Santa Claus Rally period experienced a below-average performance from the stock market, the stock market rose 65% of the time, and produced average yearly gains of 7.5%.

TRADING STRATEGIES: January Year of the stock? Stocks are expected to rally in January, potentially marking 2011 as the return to equities. Let our experts help you get you back in the game. "¢ The January effect is a small-cap affair "¢ Mark Hulbert on the inflation-deflation battle "¢ Jim Lowell: 2011 is already memorable "¢ A year for the disciplined, advises Alan Lancz "¢ Year of the stock, or year of the correction? "¢ Jon Markman: Three sectors to dominate 2011 "¢ Deflation? Don't tell that to the commodities "¢ Four ways to play the wave of M&A "¢ It's time to short the market, says Thomas Kee "¢ Invest in emerging markets with the Colonel "¢ More on the January effect: It'll be nitro-fueled "¢ Deals set to take place this month "¢ Techs, energy, industrials look strong "¢ Johnson takes stock | Impatience plays "¢ See the full Trading Strategies special report /conga/story/2011/01/trading-strategies.html 119229

To be sure, these differences are not statistically significant at the 95% level that statisticians often use to determine if a pattern is genuine. Still, notice that, insofar as you insist on drawing a conclusion from the data, you'd have to conclude that the market has better odds following Santa Claus Rally periods in which stocks were below-average performers.

Let me hasten to add that my analysis in no event should be interpreted to mean that the stock market will necessarily go up this year. There are plenty of other factors that could easily sabotage the stock market. One is the disturbingly high level of advisory enthusiasm, about which I wrote a couple of weeks ago. Read my Dec. 17 column.

The point of this column is, instead, a simple one: If the market does goes down this year, it will have nothing to do with whether Santa Claus visited Wall Street.

Are you surprised? You didn't really believe in Santa, did you?

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.

Add Comment › · Recommend · Post: Alert Email Print More Mark Hulbert Jan. 3, 2011 The January effect is a small-cap affair Jan. 3, 2011 Who will win the inflation-deflation battle? Dec. 24, 2010 Real GDP now at pre-recession levels Dec. 22, 2010 The real Santa Claus rally's about to begin Dec. 21, 2010 Will rising interest rates sabotage stocks? Explore related topics Dow Jones Industrial Average Comments Screener About Mark Hulbert

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.

First Take Fed borrows White House method to judge QE2

When it comes to evaluating the impact from its plan to purchase $600 billion worth of government bonds, the Federal Reserve seems to be borrowing a trick from the White House, says Steve Goldstein

27 min ago2:17 p.m. Jan. 4, 2011

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So, to the extent Santa visited Wall Street this year, he was rather stingy in handing out presents.

Nonetheless, I am not so sure that these results, in and of themselves, doom the market in 2011.

I came up empty, as you can see in the accompanying table.

The point of this column is, instead, a simple one: If the market does goes down this year, it will have nothing to do with whether Santa Claus visited Wall Street.

Are you surprised? You didn't really believe in Santa, did you?

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.

When it comes to evaluating the impact from its plan to purchase $600 billion worth of government bonds, the Federal Reserve seems to be borrowing a trick from the White House, says Steve Goldstein

27 min ago2:17 p.m. Jan. 4, 2011

"Mark Hulbert: How recent holiday season stacks up http://on.mktw.net/dYH9BF" 12:24 a.m. EST, Jan. 4, 2011 from MktwHulbert

"Mark Hulbert: The January effect is a small-cap affair http://on.mktw.net/dZRqN2" 12:07 a.m. EST, Jan. 3, 2011 from MktwHulbert

"Mark Hulbert: Real GDP now at pre-recession levels http://on.mktw.net/g67rPn" 12:16 a.m. EST, Dec. 24, 2010 from MktwHulbert

"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

Paul B. Farrell

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Ruth Mantell

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Mark Hulbert

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Irwin Kellner

The Economist's Corner

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Therese Poletti

Tech Tales

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Was Santa Good to Wall Street This Year?

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