- Legend says that stocks rally in the few days around Christmas, a phenomenon often referred to as the “Santa Claus rally”.
- If the markets are assumed to be efficient, it is hard to think that the Santa Claus rally is any more real than the bearded North Pole-dwelling man himself.
- Yet, history suggests that there may be something to the story, at least in what pertains to Apple stock (AAPL) – Get Free Report.
Figure 1: Why Apple Stock Could Be On The Verge Of A Santa Claus Rally
Apple
(Read more from the Apple Maven: Apple vs. Amazon: Which Is A Better Growth Stock?)
Apple Stock: Maybe Santa Claus Is Real
According to Investopedia, “a Santa Claus rally describes a sustained increase in the stock market that occurs [either] in the week leading up to December 25” or “the week after Christmas until January 2.”
But the site itself seems to discredit the notion by observing that the S&P 500 (SPY) has historically produced average returns of +0.39% in the week leading to December 25. This number, annualized and compounded, is still a very respectable 22% – but barely a rally.
Not satisfied, I decided to run my own numbers, this time on Apple stock. I went back to the beginning of this century and looked at the return patterns in the following sequences of five trading days:
- Any random five-day period
- The five-day period leading up to December 25
- The five-day period following December 25
Since 2000, Apple stock has produced an average of +0.64% over any random five-trading day period. Not a surprise, the distribution of potential outcomes has been stunningly wide, as the histogram below shows: a high of 30% in 2000 and a low of (are you ready?) -58% later that same year!
Figure 2: Histogram: 5-day returns in AAPL since 2000.
DM Martins Research
In the five days leading to Christmas, the return in Apple stock over the past 22 years has been (drum roll…) +0.94%. This number is a solid 30 basis points higher than the random average of any five-day period, or roughly 1.5 times better than the long-term norm.
The median (as opposed to the mean, or average) has been much better right before December 25: +1.83%. This kind of performance is more than twice as strong as the year-round median of the five-day returns.
As far as extremes, the worst pre-Christmas returns happened as recently as 2018: -10.4%, as the stock market at large suffered through Q4 of that year. The best performance took place in 2009: +9.0%, as stocks continued to rebound from the 2008 Great Financial Crisis.
Looking past December 25, the five-day returns following Christmas have averaged an impressive +1.68%. This is nearly three times as strong a performance as the random-period average. At the median, however, the gains drop to +1.32% – still quite solid.
Figure 3: Average 5-day return in Apple stock since 2000.
DM Martins Research
Interestingly, Apple stock’s post-Christmas returns have rarely been very disappointing. As a worst-case scenario, AAPL lost -2.6% in 2013. At the other end of the spectrum, shares climbed +9.1% in the days following Christmas 2001.
Of course, all of the above could be just coincidences. A sample size of 22 since the year 2000 is material, but the possibility of pure “noise in the dataset” is something to consider.
AAPL: Should You Ask Santa Claus For A Rally?
I am inclined to think that there may be something to the Santa Claus rally. At least history leaves that door open.
The fundamental reasons why Apple stock may outperform around December 25 include:
- Long-only institutional investors begin establishing positions for the upcoming year, in some cases before the portfolio managers leave the office to enjoy some time off.
- The post-iPhone launch period of September to November tends to be more bearish for Apple. Late December may be a good time for bargain hunters to start buying the dip.
- Trading volume is usually lower around the year-end holiday. Any bullishness during this time (remember, AAPL tends to produce positive returns, on average, during any given five-day period) could be magnified when trading volume is low.
That said, I would not make a decision to buy Apple stock solely on the possibility of a Santa Claus rally materializing in the next few days. At best, the calendar may help to nudge a potential investor who had already been considering buying shares for other, more fundamental reasons.
(Read more from the Apple Maven: Apple Stock: What The Interest Rate Hike Means For Investors)
Ask Twitter
History suggests that, at least when it comes to Apple stock, there may be something to the “Santa Claus rally” legend. Do you think that AAPL is positioned to climb through the end of 2022?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
