Santa Claus Rally

Dec 13, 2024 7 min read

Patrick

„Investing is truly the gift that keeps on giving – compound interest, returns, and dividends”

– Phil Town, investor and author

arvy’s teaser: Since December brings profits 74% of the time, the Santa Claus Rally is not a myth. But you should not get too excited by the magic and trust that this calendar effect will dictate returns. This is not a strategy to rely on in the long term. But another one is!

74%.

That is the percentage of times the stock market was positive in December in the last century.

This means that the most festive month of the year leaves all others in the chimney smoke when it comes to this balance (chart 1). However, it is not the strongest. In fact, the last month of the year is only in third place with an average return of 1.4 %, with April (1.5 %) doing better thanks to Easter and November (1.7 %) thanks to Thanksgiving. As you have noticed, important festivities take place in all these months, and this is the reason why we can observe and explain the anomaly of strong markets. The seasonal tailwind can be justified by the upbeat sentiment due to the holidays, which in turn translate into rising stock prices.

So, it is no coincidence that we are presenting the most magical anomaly to you as we reach mid-month.

It is the one that everyone is now eagerly awaiting.

The “Santa Claus Rally”.

Chart 1: S&P 500: % Positive Monthly Return (1928 – 2024)

Source: Creative Planning, Charlie Bilello

Santa Tends to Come Later in December

The “Santa Claus Rally” is one of the most well-known calendar effects, and most investors assume it simply means that stocks do well throughout December.

This is not entirely true and of course raises a question.

When does Santa come to town?

It turns out that most of the strength in December occurs in the second half of the month (Chart 2). This is especially true for the last five trading days of the year and the first two trading days of the following year. These seven days have historically led to higher stock prices 79.2% of the time, which is reflected in the S&P 500.

The explanations for the Santa Claus rally are primarily focused on the US. This is not surprising as this region accounts for around 70% of global equity market activity.

Theories include year-end tax considerations, a general sense of optimism, seasonal happiness on Wall Street, and holiday bonus investing. Some institutional investors close their books and take vacations during this time, leaving the market to retail investors, who typically take a more bullish stance on the market.

While the Santa Claus Rally may give investors a temporary boost, do not get too excited by the magic and hope that this calendar effect will dictate returns. This is not a strategy to rely on in the long term.

Instead, let’s focus on creating long-term value with a strategy that focuses on the best opportunities to compound your wealth over decades.

At arvy, this has been our focus from the beginning.

We call it “Good Story & Good Chart”.

Chart 2: Remember, Santa Tends to Come Later in December

Source: Carson Investment Research, 2023

One Year Anniversary – Thank you!

This weekend, December 15th, marks the one-year anniversary of the relaunch of the arvy equity strategy. What began with $5 million in assets under management has grown to nearly $30 million – not much is missing 😉 – thanks to your trust and support in the arvy team.

It has been a solid year, delivering a net return of 19%, with a net annualized return of 12.5% in USD terms since the strategy’s launch in February 2019. This performance reflects an annual outperformance of 0.5%, achieved with only two-thirds of the risk of global markets (Chart 3).

All of this is a testament to the “Good Story & Good Chart” investment philosophy we’ve been refining for nearly 10 years.

We want to take this opportunity to thank all our investors, friends, family, business partners, and the 7,000 readers of arvy’s Weekly who have supported us on this journey. As young entrepreneurs, your encouragement and belief in our vision to build something lasting in the financial industry mean the world to us.

While market conditions have been kind, we have also worked diligently to improve the quality of our portfolio. Today, arvy’s portfolio consists of 30 companies with superior quality and prospects compared to global markets, which remain heavily concentrated in a few mega-caps. Additionally, our portfolio offers a more favorable valuation profile considering the free cash flow yield. You can view its current composition and characteristics here.

This positions us well for 2025 and beyond.

Thank you for being part of our journey!

Chart 3: arvy’s equity strategy since inception, February 2019, net in $