presents The Santa Claus Rally

Yes, there really is a Santa Claus Rally! It’s a phenomenon where the market makes bigger-than-usual gains at the end of December and the beginning of January. In fact, December has been the second-best month for the Dow Jones Industrial Average going back over 50 years. If you’re not paying attention to the market during the holidays, you’re leaving money on the table.

1.5% 1.3% 1.2% 1.1% 1.0% 0.9%

0.4%

0.2% 0.1% 0.0% Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

-0.1%

-0.4%

Average returns by month, historical, Dow Jones Industrial Average. Data: Thomson Reuters

Whether or not the market is up or down in December, remember that the is always the biggest indicator you should follow when deciding to buy or sell. ’s Business Daily® declares a Confirmed Uptrend when the market is in the best for big gains. Learn more about how the market trend works and how you can find out the current trend.

The Santa Claus Rally, as it’s commonly used, usually refers to the time between Christmas and New Year’s Day. However, historical research says that the most profitable range of days is the last five trading days of December and the first two trading days of January. Even during December 2018’s overall market slump, the rose 2.1% and the S&P rose 1.3% in the seven trading days of the Santa Claus Rally. It’s a Christmas miracle! 11.19% 5.99% 5.78% 5.64% 5.08% % 3.25% 2.48 2.31% 1.76% 1.74% 1.65% 1.57% 1.48% 1.26% 1.26% 1.08% 1.01% 0.98% 0.86% 0.76% 0.70% 0.41%

‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 -0.10% -0.33% -0.76% -1.87% -2.15% -6.03%

December returns by year, S&P 500, 1990-2018, Data: AAII -9.18%

It’s difficult to pinpoint an exact cause, but a few theories include:

Institutional (like big banks, hedge funds, mutual funds and pensions) often make big stock buys before the end Individual investors, who tend to be of the year to “bulk up” their portfolios more bullish as a group than institutional with that performed well, which investors, will often have year-end gives a boost to leading stocks. bonuses to spend and some time off to spend it. This often results in more buying, which drives stock prices higher.

To take advantage of tax code loopholes, some investors will sell stocks they’ve taken a loss on at the end of December and buy them back in January. This creates an artificial stock price bump in January, and investors anticipating this may drive up prices at the end of the year.

How does investor psychology factor into it? The market is rational, but you can’t say the same for people. Here are a few ways that investor sentiment could alter the market in late December.

There’s cheer in the air around the People believe in holidays! This can the Santa Claus manifest itself in an Rally, so they optimistic outlook expect the market that leads to more to rise. People buy buying and higher more stocks and, as a result, the stock prices. market rises.

How can you profit from the Rally?

If you’re traveling for the holidays, use mobile apps to keep track of Set price alerts the stocks you’re for stocks you’re watching from your watching so you can phone or tablet. be notified when they’re in a buy range, even if you’re away from home. Build a list of the best stocks to watch during the holidays or time off from work. Start with a stock list that outperforms the market (like the Leaders List from Leaderboard®) Wait to buy a to save time. stock until it breaks out of a base pattern on higher than average volume. Don’t jump in too early on a stock just because the market Create custom is rallying. watchlists of your stocks and set mobile alerts with the IBD® and MarketSmith® apps. You can download and try them for free!

Ho-ho-hoping for bigger returns this year??

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