Every year, most of the investors across the globe anxiously wait for the Santa Claus to come in December to boost their investment portfolios in year-end. Now, a question may crop up in your mind as what Santa has to do with the stock market? Well, it is may sound to be quite unusual, but Christmas is a time, when the global stock markets, generally rally in the final weeks of December leading up to the New Year. This phenomenon is known as the Christmas Rally or Santa Claus Rally. For the past several decades, research and studies that during this time of the year stock markets generally see a positive swing and is also considered as a great time to invest for the investors.
So, what exactly is a Christmas rally and why it is the favorable time of the year to start investing?
What is a Christmas Rally and its Importance for Indian Stock Market?
A Christmas rally is essentially a rise in the stock market that takes place during the week around Christmas and New Year’s day i.e. between 25 December and 1 January. The term Christmas or Santa Claus rally was first conceived by the market analyst Yale Hirsch in his Stock Traders Almanac in the year 1972. It is also known by the name ‘December Effect’.
Most of the people tend to invest in the shares as they expect a surge in the share prices in January after the Christmas. This is also known as the ‘January Effect’.
There is a common thinking among the people or investors that the term Christmas rally is generally associated with the global markets only, but you will be really surprised to know that its effects can be witnessed in the Indian stock markets as well. The Christmas rally in India has also brought the festive cheer to the domestic markets since 1979.
Sensex was launched in the year 1986 with the base year as 1978-79. During that time of the year, in the last week of December, the investors made an average gain of around 3.4%. The biggest positive effect of the Santa Claus rally was witnessed in the month of December 2003, when there was a 15% surge in the stock market. If we analyze the performance of the market for the last 10 years for the month of December i.e. from 2008 to 2017, then it is clearly visible that the market has rallied most of the times and closed low only 3 times.
Hence, it is crystal-clear from the above table that the bulls have reigned supreme over the market most of the time during the month of December and it is not the bad month to invest, all thanks to the Christmas rally.
What Causes a Christmas Rally?
There are various reasons for the Christmas rally in December. The prominent ones are as follows:
- People making investments in the year-end just to save their tax.
- End of the year bonus investments being invested in the market by the people.
- A general feeling of optimism among the investors with regard to the economy and the stock market.
- Anticipation of the market rise in the New Year.
Important Point to Remember: There is an uncertainty about the Christmas Rally, whether it is real or unreal. Indeed, the higher number of positive closes over the past years has shown that the rally is a good thing for the Indian stock market. So, as investors, it is better to be educated and carry out comprehensive research work before investing in the year-end.
Is Christmas Rally Good Time to Invest in the Stock Market for 2019?
This is a question that will certainly crop up in your mind after all the above discussion. The stock markets tend to surge during the Christmas season and first few days of the New Year i.e. January 2019. This may be attributed to the positive money flows in the last few weeks of December and the first few weeks of January. This is no doubt one of the excellent months to stay invested in the stock market for the year 2019.
However, before investing, you must adopt a cautious approach because nothing is guaranteed. It cannot be predicted whether the Santa Claus rally 2018 will happen or not. So, it is better that you must formulate your investing or trading strategy after research work or taking sound advice from the financial advisors to minimize your risk and maximize your profits for 2019. If you are a beginner, then you must jump on the first opportunity you see. A cautious and disciplined investing approach is extremely important to achieve success.
If you look at the historical data, then yes Santa has been quite generous for the stock market in India and investing in Christmas rally 2019 can prove to be profitable.
Do you believe in Christmas rally? Do you really think it will happen this year? What will be your investment plan? Let us know in the comments.