Yes, stock investors, there is a Santa Claus rally. No, it isn't coming early.

By Mark Hulbert

Wall Street wants you to believe that a year-end stock-market rally starts now

Will investors fell jolly as the year wraps up?

The Dow has risen 77% of the time from the day after Christmas through the first two trading days of January.

Wall Street needs to give Santa a break.

Just like retailers who roll out holiday merchandise earlier every year, Wall Street analysts have pushed forward expectations of when a "Santa Claus rally" might reward the stock market. The term used to refer to the market's upward bias in the post-Christmas week. But this year I started receiving emails in late September trumpeting an imminent Santa Claus rally.

A certain precision is called for when assessing whether Wall Street's belief in a Santa Claus rally justifies increasing your equity exposure level at the end of the year. Below I subject to statistical scrutiny the various definitions of the Santa Claus rally that I've come across in recent years.

1. November and December are the best two-month stretch for stocks: This is the broadest definition I've seen, which in effect credits Santa for the stock market's strength from Halloween through the end of December. And it is true that the last two months of the calendar year often are good for the stock market.

But you still may not want to bet on that strength, because the last two months of the year have not always been so great. If you split in half the entire period since 1896, when the Dow Jones Industrial Average DJIA was created, you get two different pictures depending on which you focus on: In the more recent half the November-December period has the best return of any two-month period, but in the first half of the Dow's existence, that two-month period's average return is indistinguishable from the average of all two-month periods.

That's a fatal flaw in the Santa Claus rally's statistical foundation, unless there is a good explanation for why Santa Claus was asleep for more than 60 years and then woke up.

2. The stock market has a stronger rally potential in November and December: This definition of the Santa Claus rally is closely related to the previous one. But now the claim isn't that the stock market performs especially well over the entire two months of November and December. It's that at some point during those months the market stages an especially impressive rally.

To test for this possibility, I calculated the maximum possible rally during those two months - measured from the lowest close in November to the highest close in December. I then did the same calculation for every other month. Measured in this way, the November-December rally potential is not statistically different than average. In fact, five other two-month periods have a greater potential.

3. Santa Claus rally begins the day after Christmas: This definition of the Santa Claus rally survives statistical scrutiny. It's the traditional one, which defines it as beginning the day after Christmas and lasting through the first two trading days of January. Based on its performance since its creation in 1896, the Dow has risen 77% of the time over this period, producing an average gain of 1.44%. That compares with an average gain of 0.16% over all other periods of equal length since 1896, over which the Dow rose 56% of the time.

These differences are significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.

The bottom line: Be patient. The only Santa Claus rally worthy of the name doesn't arrive until Christmas - just like the big man himself.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Wall Street's biggest bull reveals what investors got wrong this year - and what's ahead for stocks and crypto

Also read: Wells Fargo says lock in gains in tech and invest here instead

-Mark Hulbert

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-11-25 2117ET