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Santa Claus Rally: Updated Stats And Expectation

Adam Grimes profile picture
Adam Grimes

This is the last in a series of blogs looking at December seasonality in stocks.

To quickly recap, the first post used a simple binary (up/down) classification to look at all months of the year in graphical format. (Lesson: yes/no classifications are useful and so are data visualizations.)

The second post looked at summary stats for each month by decade. (Lesson: size of the move matters, too.)

The third post teased market action out into bull/bear/flat years and found that the tendency for a December rally appeared to be depressed in Bear markets. (Lesson: be very careful of taking multiple cuts through the data. Be careful how you ask questions.)

This post will extend the work of the previous posts into daily returns, and we will get close to something I would consider a "final answer" on the topic.

December seasonality

We've looked at month to month changes, but there's much more information available on the daily level. The table below compares the daily returns in December against daily returns for the entire year.

The columns are:

  • Date (inclusive)
  • Excess (Ann.): the average daily excess return, meaning the average return in December - the average return for all days of the year. This number is presented in basis points (1 bp = 0.01%) and as an annualized percentage. (We aren't suggesting you could get this return for a year; it's just an easy way to see if the return is large or not!)
  • P val: a significance test
  • %Up columns: the percentage of days that closed positive in December and for all years of the decade.

From this table, we can see a few things: there were decades where December outperformed dramatically. The 1970s stand out, but there were many other decades that saw December as a strong performer. (This reinforces the intuition we

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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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