#$dia

Santa Claus Rally starts today. The Santa Claus Rally was discovered and named by Yale Hirsch in 1972 and published in our 1973 Stock Trader’s Almanac as the last five trading days of the year and the first two trading days of the New Year. This short, sweet rally is usually good for about 1.3% on the S&P 500, but the real significance of the SCR is as an indicator. 

It is our first seasonal indicator of the year ahead. Years when there was no Santa Claus Rally tended to precede bear markets or times when stocks hit lower prices later in the year. As Yale’s famous line states (2026 Almanac page 118): “If Santa Claus Should Fail To Call, Bears May Come to Broad and Wall.” 

Russell 2000 has logged the greatest frequency (73%) and magnitude of gains (+0.41%) on the day after Christmas. Since 1988, NASDAQ has advanced 70.3% of the time with an average move of +0.37%. DJIA and S&P 500 have slightly softer records, but bullish, nonetheless. 

Two days after Christmas, the market is less bullish with NASDAQ down more often than up. Three days after Christmas R2K small caps take the lead advancing 62.2% of the time with an average gain of +0.46%. 

Looking further out, from 1950-1985 last 5 trading days of the year S&P 500 up 34 of 36 years, average gain 1.24%. 1986-2024 up 21 of 39 (no change in 2006), average gain 0.39%. 

Click here to view table full size…

April is the second-best month of the year for DJIA and S&P 500 (since 1950) and fourth best for NASDAQ (since 1971). Despite pressure from the Iran war, surging energy costs, and the pending income tax deadline on April 15, the market has gotten off to a strong start this April. Gains as of today’s close range from 0.52% by DJIA to a solid 1.98% from NASDAQ.

The first half of April used to outperform the second half, but since around 1994 that has not been the case. The effect of April 15 Tax Deadline does appear to be diminished with strength generally present throughout April. Traders and investors also appear to be more focused on first quarter earnings and guidance throughout the entire month of April.

As the Iran War enters its second week, we have seen market volatility surge and crude oil spike to nearly $120 per barrel from a pre-war price of around $65. But for all the turmoil and geopolitical unknowns that remain, the market is proving to be rather resilient. We recently noted this tendency in last Monday’s post, “S&P 500 Performance During War, Geopolitical & Energy Crises.” From its close on Friday, February 27, the last day of trading before the war began, S&P 500 is down –1.41% as of today’s close and is off just –2.82% from its all-time closing high on January 27.

Over the past 21 years, the first half of March has been weak and although for a different reason this year, the major indexes are not that far off of their respective average performance this March. After lagging in January and February, NASDAQ is leading the market now, up +0.13% in March as of today’s close. DJIA and Russell 2000, which were strong in January and February, now lag, off 2.60% and 3.20% respectively. S&P 500 splits the difference between NASDAQ and DJIA, down –1.42%.

After a six-year streak of strength from 2012 to 2017, the market appears to be returning to its longer-term trading pattern on the Tuesday following the long Presidents’ Day holiday weekend. S&P 500 has been the weakest on Tuesday, down 6 of the last 8 with an average loss of –0.52%. DJIA and NASDAQ have one additional positive day, but their respective average losses are larger than S&P 500, –0.62% and –0.60% respectively.

Going back to 1990, Tuesday after Presidents’ Day has been strongest for the S&P 500 with 19 gains and 17 losses with a median gain of 0.08% but with an average loss of –0.29%. DJIA is slightly weaker on the Tuesday after, while NASDAQ is a net loser down 22 of 36 years with an average loss of –0.56% and a median loss of –0.32%.

Early last week it looked as though February was going to once again live up to its reputation as the “weak link” of the Best Six/Eight Months for DJIA, S&P 500 and NASDAQ. After posting a solid gain on the first trading day of February, the market turned and retreated rapidly. NASDAQ pulled back the deepest and was down nearly 4% at its low close last week. Last Thursday was also the fourth trading day of February, and the Midterm seasonal pattern indicated that a bottom was possible sometime around the fourth to sixth trading days.