How Often Does the Christmas Rally Bring You Presents?


Visit: Seasonax


Cofounder of Seasonax

You have probably already heard about the Christmas rally. 

It is one of the most popular seasonal patterns, and lasts from mid-December to early January. 

It is in fact one of the most profitable seasonal patterns for the entire stock market. Moreover, it has been around for many years. Therefore there seems to be solid ground for its good reputation. The probability of a positive movement at the end of the year is very high. 

But when exactly does the Christmas rally begin? How often does it occur; and how profitable is it actually? 

The S&P 500 under the seasonal magnifying glass

This first chart shows you the seasonal trend of the S&P 500. Unlike usual charts, it does not show the price over a certain period of time, but the average trend of returns over 25 years depending on the season. 

The horizontal axis of the chart shows the time of the year, while the vertical axis shows price information. So you can see the seasonal trend in the seasonal chart at a glance.

S&P 500, seasonal trend, determined over 25 years

S&P 500, seasonal trend, determined over 25 years

Things are looking up again at the end of the year. Source: Seasonax

Noticeably there are several good seasonal phases in the US stock market. In the weeks up to the beginning of May prices rise, followed by a weak phase that sets in with “Sell in May and go away”.  Then there is the fall rally, which is interrupted at the beginning of December, and then the Christmas rally marked with the arrow.

Long-term seasonality on the US stock market

Now look at the seasonal pattern of the U.S. stock market over the very long period of 125 years.

Dow Jones, seasonal trend, determined over 125 years

Dow Jones, seasonal trend, determined over 125 years

The Christmas rally has been around for a long time. Source: Seasonax

You can see that the Christmas rally is also very impressive in the long-term view.

The fact that the Christmas rally could exist over such a long period speaks for its stability. 

The Christmas Rally is a true Christmas gift!

Let’s look at the Christmas rally in detail. According to the past 25 years, I have set its beginning on December 14,  with its end on January 3 (in the long-term view, the Christmas rally often began and ended a few days later). 

The study over 125 years shows that the seasonal phase for Dow Jones between the December 14 and January 3 was positive in 88 cases, the majority of years. 

The average increase was 1.52%, with the Dow Jones rising an average of 5.52% per year over the 125 years. The Christmas rally thus generated more than a quarter of the total annual gain in just 12 trading days – a true Christmas present!

The annualized gain during this time of year was 34.24% on average, but only 4.09% during the rest of the year. This also shows you the strength of this seasonal pattern. 

Now consider the distribution. The bar chart shows you, for all years since 1897, the return of the Dow Jones between that of December 14 and January 3. In blue you see the years in which there were gains, in red the years in which there was a loss.

Dow Jones, return in percent between Dec. 14 and Jan. 3, in individual years since 1897

Dow Jones, return in percent between Dec. 14 and Jan. 3, in individual years since 1897

Around Christmas, prices often rise! Source: Seasonax

The distribution of positive bars is fairly even. The Christmas rally is therefore clustered and fairly evenly distributed over the entire period under review.

It is therefore neither a recent phenomenon nor an outdated myth, but a true classic.

The reasons for the Christmas rally

Window dressing at the end of the year is often discussed as the reason for Christmas rallies. That is probably one of the reasons. 

However, I think there are also emotional reasons for the Christmas rally. For example, the mood around Christmas tends to be festive. Thanks to gift purchasing most people are in a buying mood, which is transmitted to stocks.

Find your winners with Seasonax!

The profitable Christmas rally is one of the best known seasonal patterns. But there are many many more that are also good, and often little known.

Just call up Seasonax and look there! So you can find your seasonal pattern in seconds. 

Originally Posted November 30, 2022 – How Often Does the Christmas Rally Bring You Presents?

Disclosure: Seasonax

Past results and past seasonal patterns are no indication of future performance, in particular, future market trends. Seasonax GmbH neither recommends nor approves of any particular financial instrument, group of securities, segment of industry, analysis interval or any particular idea, approach, strategy or attitude nor provides consulting nor brokerage nor asset management services. Seasonax GmbH hereby excludes any explicit or implied trading recommendation, in particular, any promise, implication or guarantee that profits are earned and losses excluded, provided, however, that in case of doubt, these terms shall be interpreted in abroad sense. Any information provided by Seasonax GmbH or on this website or any other kind of data media shall not be construed as any kind of guarantee, warranty or representation, in particular as set forth in a prospectus. Any user is solely responsible for the results or the trading strategy that is created, developed or applied. Indicators, trading strategies and functions provided by seasonax GmbH or on this website or any other kind of data media may contain logical or other errors leading to unexpected results, faulty trading signals and/or substantial losses. Seasonax GmbH neither warrants nor guarantees the accuracy, completeness, quality, adequacy or content of the information provided by it or on this website or any other kind of data media. Any user is obligated to comply with any applicable capital market rules of the applicable jurisdiction. All published content and images on this website or any other kind of data media are protected by copyright. Any duplication, processing, distribution or any form of utilisation beyond the scope of copyright law shall require the prior written consent of the author or authors in question. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Seasonax and is being posted with permission from Seasonax. The views expressed in this material are solely those of the author and/or Seasonax and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.