The “Santa Claus rally”

The “Santa Claus rally”
The “Santa Claus rally” refers to the tendency for the S&P500 to do well in December, and specifically the last part of December. We can assess this quantitatively with the first chart showing the average price experience across the year by trading day – it also shows how 2017 has been tracking against the averages, and so far it has been lining up reasonably well (except for defying seasonal gravity in Sep-Oct).
But perhaps more telling it the detailed statistical table of monthly returns.  It shows December ranked no. 2 in terms of average returns, first equal on the percentage of times returns were positive, respectable best ever return, and smallest worst draw-down, it also had the lowest standard deviation of returns or variability (so you could also say it had the best sharpe ratio!).

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Of course the usual disclaimer is necessary: seasonality can and does have a habit of breaking down (not working)... particularly when you need it the most or rely on it! So it is more and interesting piece of additional context: something to be considered along side a broader case of valuation, earnings/cycle, monetary policy, sentiment, etc. For that matter, my view is selloff risk is elevated, correction risk is medium, and at this point bear market risk is low.
As previously pointed out the S&P500 has been tracking more or less in line with its historical seasonal tendencies so far this year, albeit it defied gravity during the historically harder time of the year in Sep-Oct.


Looking in detail across the monthly return statistics December is actually ranked second in terms of average return, but first equal on proportion of the time returns positive, it also had the smallest drawdown and lowest standard deviation of all the months.


Looking at google search trends there is a predictable pattern in search activity on the santa claus rally!


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TCI David Marcus Investment ResearchThe Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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