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November Uptick More Likely Than A Santa Claus Rally?

November 4, 2021

Following the worst monthly return since the COVID recovery, both domestic and international equities rebounded nicely in the month of October. This strong equity bounce was welcome news as supply chain bottlenecks and poor economic data dominated the headlines for the month of September. Although these same concerns are certainly still relevant in the short to intermediate term, investor optimism has equities trading near new all-time highs as Q3 earnings season is underway.

For the month of October, the S&P 500 gained 7.01% while the more tech heavy NASDAQ index returned 7.29%. Although participating in these gains to a lesser degree, international stocks also posted positive performance in the month of October. Emerging markets gained .99% while the MSCI Developed ex. US Index gained 2.27%.

From a year-to-date standpoint, equity returns have had a strong 2021. Large, Mid, and small cap indices all have a YTD return greater than 20%. So that brings the question, will this upward trend continue for the remainder of the year? Well, the short answer is, of course, no one really knows. However, some historical analysis may help us determine how likely markets are to continue.

Market participants have coined the latter half of December the “Santa Claus Rally” to describe the general predictability of positive market returns around the holiday season. A catchy phrase for a wonderful time of the year no doubt, but does this old market myth actively hold true in today’s computer driven markets?

To see if the Santa Claus Rally holds true, we collected 20 years of monthly return data.

After obtaining our market data, we tallied each time the S&P 500 finished positive for a given month and determined the positive frequency percentage by dividing the number of positive return months by the total number of years.

Now, looking over the data one can easily see that although December is a great month for equity returns--as is April--November has outproduced all months in returning positive outcomes over the past 20 years.

Remember that question regarding the likelihood of markets to continue higher for the remainder of the year? Well, now that we have determined that, historically speaking, November has a probability of finishing positive 85% of the time while December has a probability of 75%. The reality is that there is a ~50% chance of a positive or negative month, but the exercise of quantifying probabilities allows us to better reflect on what we will actually experience while still believing in Santa Clause.  

Lastly, although we use research and analysis to help us better understand and visualize market trends, one should always remember the importance of diversification. Whether an investor diversifies though asset allocation, investment styles, or some other variation, it’s always important to have tailored investment plan that has clear beginning and end in sight.

Brian Rosso, CFA
Portfolio Management Analyst

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

The MSCI World ex USA Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the United States.

There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.

The Reports’ commentary, analysis, opinions, advice, and recommendations represent those of Stadion Money Management and are subject to change at any time without notice. The opinions referenced are as of the date of publication and are subject to change to due changes in the market or economic conditions and may not necessarily come to pass Stadion reserves the right to modify its current investment strategies based on changing market dynamics or client needs. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Stadion’s assumptions, expectations, objectives, and/or goals will be achieved. There is no guarantee of the future performance of any Stadion portfolio. This material is for information use only and should not be considered financial advice. The data presented has been gathered from sources believed to be reliable; however, their accuracy, completeness, or reliability cannot be guaranteed. We make no warranties and bear no liability for your use of this information.

Diversification does not eliminate the risk of experiencing investment losses.

Stadion Money Management, LLC ("Stadion") is a registered investment adviser under the Investment Advisers Act of 1940.  Registration does not imply a certain level of skill or training. More information about Stadion, including fees, can be found in Stadion's ADV Part 2, which is available free of charge.

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Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.