Is Santa Real? Monthly Seasonality In The DJIA

Adam Grimes profile picture
Adam Grimes

This is the first in a short series of blogs in which we will look at the so-called Santa Claus rally in stocks and find some answers to the question "is there a tendency for stocks to rally into the end of the year?"

This is not a simple question to answer, but a good place to start is with a data visualization. The chart on this page shows each month (vertical columns) of each year of the DJIA back to 1929 (rows). If the month was positive, the box is colored green. If the month closed down, the box is red. (There were no months that were unchanged.)

Spend some time looking at that chart.

Tomorrow, we'll look at this in a slightly different way, but here are a few numbers to consider:

  • In this dataset, 58.8% of months are positive. (Any randomly selected month should be green about 58.8% of the time.)
  • All Decembers are green 72% of the time. This is the largest percent green of any month.
  • January, April, July, and November are close behind. Each of these has about a 62%-63% chance of being green.
  • Red months are September (40% green), June (52%), and May (55%).

So, it appears that December has been green more than any other month in the dataset, but a look at the "Christmas Tree" (red and green) chart shows us that it's far from a certain thing that December will be up. In addition, it looks like only two Decembers between 1942-1963 were red, so we have to wonder if that might be skewing the data.

Spend some time looking at this chart and thinking about questions to ask. We will look at this across different time slices, bull and bear market conditions, and then dig into daily returns instead of monthly.

Oh, final thought: most people call the December rally the "Santa Claus Rally" or "Santa Effect," but that's a mistake. That's not the real Santa, and we'll get to that too!

This article was written by

Adam Grimes profile picture
Adam Grimes has well over two decades of experience in the industry as a trader, analyst and system developer. Growing up in an agricultural community in America’s Midwest, Adam’s first trading experiences were in agricultural commodities and futures. He then moved to currency futures, trading during the Asian Financial Crisis, and then on to stock index futures, options, and individual stocks. His trading experience covers all major asset classes–futures, currencies, stocks, options, and other derivatives, and the full range of timeframes from very short term scalping to constructing portfolios for multi-year holding periods. He currently is President of Talon Advisors, LLC, where he writes daily market commentary and institutional advisory. He also shares daily market analysis and educational content at MarketLife, LLC. Prior to his work with these firms, he held the position Partner and Chief Investment Office at Waverly Advisors, VP of Quantitative System Development at Level Partners, LLC, Senior Analyst and Trader at MBF Asset Management on the New York Mercantile Exchange, and Chief Technical Strategist at SMB Capital. Adam is the author of The Art & Science of Technical Analysis: Market Structure, Price Action & Trading Strategies, published in 2012 by John Wiley & Sons, and The Art & Science of Trading: Course Workbook, published in 2017 by Hunter Hudson Press. Adam is also a contributing author for several publications on quantitative finance and related topics, and is much in demand as a speaker and lecturer on the topics of technical trading, risk management, and system development. Adam is also an accomplished musician, having worked as a professional composer, and classical keyboard artist specializing in historically-informed performance practices. He is also a classically-trained French chef, having served a formal apprenticeship with chef Richard Blondin, a disciple of Paul Bocuse.

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