The Santa Claus Rally is a jolly gift S&P 500 investors usually get during the holidays. But the stock winners in recent yuletide rallies would probably surprise you.
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The trend, unearthed by “The Stock Trader’s Almanac,” shows that while December is usually good for stocks, much of those gains happen in the final five trading days of the year and the first two in the new year. That means it kicked off on Dec. 24. On average, the rally is good for a 1.3% pop.
But it’s not the red-hot stocks like Apple (AAPL) and Amazon.com (AMZN) that usually score the most in Santa’s rally as of late. It’s far less glamorous S&P 500 stocks.
And recently, the Santa Claus Rally has been most bullish for energy and consumer discretionary stocks in the S&P 500 like Diamondback Energy (FANG) and Advance Auto Parts (AAP) in addition to industrial names like General Electric (GE). A dozen S&P 500 stocks gained more than 2.5%, on average, in Santa Claus Rallies the past five years.
On a sector level, consumer discretionary and real estate stocks have done best in the last five Santa Claus Rallies.
“Why are these seven days so strong?” said LPL Financial Chief Market Strategist Ryan Detrick. “Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays — or the holiday spirit — the bottom line is that bulls tend to believe in Santa.”
S&P 500 Santa Claus Rally, By The Numbers
The S&P 500’s typical 1.3% Santa Claus gain is a “short, sweet and respectable rally” investors like to expect. It usually delivers.
“There isn’t a single seven-day combo out of the full year that is more likely to be higher than the 77.9% of the time higher we’ve seen previously during the Santa Claus Rally,” Detrick said. “These seven days are up an average of 1.33%, which is the second-best seven-day combo of the year.”
In the past five years, the best Santa Claus Rally came in 2018. The SPDR S&P 500 ETF (SPY) shot up 1.5% during those seven trading days.
What Kinds Of S&P 500 Stocks Does Santa Like?
Heavy industrial, energy and materials stocks in the S&P 500 have tended to do best during St. Nick’s rally.
Long-suffering GE shareholders tended to gain. GE posted a 4.6% average gain during the Santa Claus Rally the past five years, shows an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. It could use some good news, as GE stock is already down 4.4% this year. Do you know what to look at before buying GE stock?
Similarly, energy stocks like Diamondback have been dumpster fires this year. Diamondback is down 48% in 2020 so far. But it’s the third best winner in the Santa Claus Rally for the past five years, up an average of 3.4%. Do you know how to make money in energy stocks?
Not all Santa Claus winners are losers in 2020. Materials company Newmont is the No. 2 Santa Claus Rally champion, up 4.2% on average the past five years. And this year it’s already up 39.1%.
Given that people have spending to do, it’s not surprising to see consumer discretionary S&P 500 stocks gain this time of year. Advance Auto Parts rose 3.3% in the past five Santa Claus Rallies. And apparel maker Hanesbrands (HBI) rose 2.8%.
In fact, the Consumer Discretionary Select Sector ETF (XLY) is the No. 2 best S&P 500 sector ETF in the Santa Rally, rising an average of 1% the past five years. Only the Real Estate Select Sector SPDR ETF (XLRE) did better, gaining 1.1%.
Santa Had Better Show Up
There’s an ominous side to the Santa Claus Rally, too. When it doesn’t happen, that usually portends poorly for the new year.
The Santa Rally only missed six times since the mid-1990s, Detrick says. And S&P 500 stocks fell in January five of those six times. Stocks dropped the following full year four out of the six year missing a Santa rally, too.
“Considering the bear markets of 2000 and 2008 both took place after one of the rare instances that Santa failed to show makes believers out of us,” Detrick saiad. “Should this seasonally strong period miss the mark, it could be a warning sign.”
Santa’s S&P 500 Favorites
S&P 500 stocks that put up biggest average Santa Claus Rallies in the past five years
| Company | Symbol | Avg. Santa Rally % gain | YTD % change | Sector |
|---|---|---|---|---|
| General Electric | (GE) | 4.6% | -4.6% | Industrials |
| Newmont | (NEM) | 4.2% | 39.1% | Materials |
| Diamondback Energy | (FANG) | 3.4% | -47.9% | Energy |
| Advance Auto Parts | (AAP) | 3.3% | 0.0% | Consumer Discretionary |
| Williams | (WMB) | 3.1% | -12.7% | Energy |
| Hanesbrands | (HBI) | 2.8% | -1.7% | Consumer Discretionary |
| Dollar General | (DG) | 2.8% | 35.5% | Consumer Discretionary |
| Biogen | (BIIB) | 2.8% | -16.1% | Health Care |
| Oneok | (OKE) | 2.7% | -49.0% | Energy |
| NRG Energy | (NRG) | 2.6% | -12.1% | Utilities |
| Occidental Petroleum | (OXY) | 2.6% | -57.1% | Energy |
| Dollar Tree | (DLTR) | 2.6% | 15.4% | Consumer Discretionary |
