A “Santa Claus Rally” is a seasonal phenomenon that occurs in the stock market the last five trading days of the current year through the first 2 trading days of the new year. During a Santa Claus Rally stocks yield a positive return each day of the rally. According to the 2016 edition of the Stock Trader’s Almanac, "since 1969, the Santa Claus rally has yielded positive returns in 34 of the past 45 holiday seasons with returns averaging 1.4%.

There are several theories that try to explain the Santa Claus Rally. These include the following:

1. Optimism fueled by the holiday spirit;
2.  Increased holiday shopping; 
3. Investing of holiday bonuses; 
4. When institutional investors go on vacation, the market is left to retail investors, who tend to be more aggressive;
5. Increasing their stock portfolio to avoid The January Effect, the seasonal perceived increase in stock prices in the month of January; and
6. Research has also shown that value stocks tend to outperform growth stocks in December. 

According to Stock News, this year’s rally may provide an even bigger return, due to the following reasons: 

1. S&P is up more than 20%; and 
2. Fund managers are underperforming and underinvested. 

This means that fund managers will become aggressive buyers of stocks at the end of the year. These funds will need to increase their equity exposure to ensure that they don’t end the year underperforming their benchmark and risk losing their capital and potentially their jobs. 

Whether the Santa Claus Rally is coming to town or not this year, is yet to be seen. However, per Reuters, marrying a solid S&P with solid savings and earnings, usually bodes well for the year end market.

Tickers to consider: AAU.V, SSVR.V,  CEI,  FRSX, RNAZ, PPCB & TZA

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