"The Santa Claus Rally" is here! The performance of U.S. stocks in December tends to be balanced

According to the Zhitong Finance APP, as the "Santa Claus rally" officially kicked off on Tuesday's shortened trading day, the S&P 500 index rose by 1.1%, sweeping away the decline in December and achieving its third consecutive trading day of gains, recovering losses from last week's sharp drop. Although 2024 is expected to be an excellent year for this large-cap benchmark index, December's performance appears lackluster and is at risk of breaking its historical status as one of the best months of the year.

Jeff deGraaf, Chairman and Head of Technical Research at Renaissance Macro Research, stated in a report before Tuesday's market open: "The S&P 500 has performed well over the past two trading days, attempting to resolve the oversold condition, but this rebound lacks momentum."

He pointed out that historical data shows a 74% chance of positive returns in December, "but 2024 seems to be becoming a 26% exception unless there is a strong push." (See the chart below)

This may be the time for "Santa Claus" to make an appearance. The "Santa Claus rally" begins with Tuesday's market open and ends on January 3 of the following year. This phenomenon was first proposed by Yale Hirsch, founder of the Stock Trader's Almanac, in 1972, referring to the seasonal trend where the S&P 500 index often rises during the last five trading days of the year and the first two trading days of the new year.

According to the Stock Trader's Almanac and Dow Jones market data, since 1969, the average gain of the S&P 500 during these seven trading days is 1.3%, while the average gain over any seven trading days is only 0.24%.

Why does this phenomenon occur? Financial writer Mark Hulbert believes it may be partly due to investors being less inclined to focus on the market during the holiday period. This mindset may allow this pattern to persist, although most similar seasonal phenomena tend to be offset by market behavior once they become widely known.

This year's Santa Claus rally got off to a good start. On Tuesday, the cumulative decline of the S&P 500 index in December was reversed to a 0.2% monthly gain. The Dow Jones Industrial Average rose nearly 400 points, an increase of 0.9%, but is still digesting a cumulative 4% decline in December. The Nasdaq Composite Index rose by 1.3%, with a cumulative increase of 4.2% in December, mainly due to a strong rebound in technology stocks.

The stock market closed early on Tuesday, and the U.S. market will be closed for the Christmas holiday (Wednesday) and will reopen on Thursday morning. Investors will also pay attention to Hirsch's well-known saying: "If Santa Claus doesn't show up, the bears may come to Wall Street."

Jeff Hirsch, editor of the Stock Trader's Almanac, pointed out that a missing Santa Claus rally often signals a bear market or a period when stock prices may be lower in the future. According to the Almanac's standards, there was no Santa Claus rally in 1994, 2005, and 2015, followed by lackluster years In 2000 and 2008, there were severe bear markets, and the mild bear market in early 2016 was also related to this