Fisher Investments Reviews the 'Santa Claus Rally' and 'January Effect'

The “Santa Claus Rally”—More Cheery Coincidence Than Rule

The “Santa Claus Rally” has charmed investors since it was coined in the 1970s, suggesting stocks typically rally the last weeks of December into the beginning of the New Year. Some investors point to several factors they believe support a “Santa Claus Rally,” such as increased optimism around holiday spending and reduced trading volumes. However, in our view, none have been widely proven and have feeble fundamental support. For example, retail sales aren’t as seasonal as many investors believe and low trading volumes can just as easily be negative for prices as positive.

While it’s possible markets may see an uptick at the end of the year, recall that stocks aren’t serially correlated—meaning past performance doesn’t predict future performance—and historically rise more often than they fall.^[i] For most investors, the market’s movement over a few short weeks of the year is largely inconsequential, and in Fisher Investments’ view, shouldn’t dictate long-term investment decisions. Whether markets offer gains or losses during the holiday season, broader economic trends, political developments, and shifts in investor sentiment often wield far greater influence on market performance.

The “January Effect”—Can One Month Predict the Year Ahead?

The new year brings with it talk of the “January Effect”. Also known as “So goes January, so goes the year,” this adage asserts the market’s performance in January predicts how stocks will behave for the rest of the year. Like other seasonal investing adages, the data paints a different picture. For instance, the S&P 500 has posted 60 positive Januarys since 1926. Of those instances, the calendar year was positive 51 of those times (Exhibit 1)—about 85% of the time.^[ii]

Exhibit 1: The January Ineffect

Source: Global Financial Data, FactSet, as of 12/10/2024. S&P 500 Total Return (monthly) from 1/31/1926-12/31/2023

Conversely, the month of January was negative 38 times over the same period and finished the year down only 17 times—less than half and by a narrow margin (Exhibit 2).^[iii] While some may believe these data support the “January Effect,” we would caution about making investment decisions on false coincidences. The factors that drove performance in each of these years are far too complex to be simplified down to what happened in the first month.

Exhibit 2: Down Januarys Aren't Predictive

Source: Global Financial Data, FactSet, as of 12/10/2024. S&P 500 Total Return (monthly) from 1/31/1926-12/31/2023

Stocks have risen during 73 percent of complete calendar years since 1926, regardless of January performance.^[iv] Equities rise more often than they fall and simplistic connections between this time of year and stock performance fail to account for broader, more reliable economic drivers. In Fisher Investments’ view, January is just a month, and nothing is inherently predictive about one month in a 12-month long year.

Seasonality Just Isn't Predictive

Seasonal investing myths like the “Santa Claus Rally” and the “January Effect” share a common thread—they assume past performance can predict future returns. In Fisher Investments’ view, the stock market efficiently prices all widely known information, and seasonal investment adages cannot reliably predict future market returns. If these seasonal adages had any predictive power, efficient markets would have already considered it, sapping it of any advantage—perceived or otherwise.

In our view, long-term investors should forgo seasonal investing adages like “Santa Claus Rally” and the “January Effect”. Instead, enjoy the holidays and the new year for what they are—a great time to spend with friends and family.

Want to Dig Deeper?

In this article, Fisher Investments reviewed the reliability of two seasonal investing myths: the “Santa Claus Rally” and the “January Effect”. For Ken Fisher’s take on the “Santa Claus Rally”, view his video, “Fisher Investments Reviews The Truth Behind the ‘Santa Claus Rally’.”

For more analysis on how seasonal investing myths impact markets, you can read Fisher Investments’ MarketMinder article, “An Ineffective Indicator: January’s Returns.”

For more market insights from Fisher Investments, get our latest commentary here.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

[i] Factset, as of 12/10/2024. MSCI World Total Return from 12/31/1969 – 12/31/2023
[ii] Global Financial Data, FactSet, as of 12/10/2024. S&P 500 Total Return (monthly) from 1/31/1926 – 12/31/2023
[iii] Global Financial Data, FactSet, as of 12/10/2024. S&P 500 Total Return (monthly) from 1/31/1926 – 12/31/2023
[iv] Global Financial Data, FactSet, as of 12/10/2024. S&P 500 Total Return (monthly) from 1/31/1926 – 12/31/2023