Santa, Stocks, & Statistical Flaws: The Holiday Naughty List Edition
It’s the time of year when everything feels a little more special and whimsical, Santa Claus rallies, spooky October selloffs, and even football games pretending to forecast stock returns.
We’re a storytelling pattern-seeking species. When faced with chaos, we crave order, reach for patterns, and a good rhyme or calendar quirk feels like control, even if we must invent them.
Markets, with their daily swings and endless data, are ripe ground for such stories, and none of this comes into sharper focus than in December. It’s when analysts dust off old adages, journalists rediscover rhymes, and investors hope that jolly old Saint Nick will do more than deliver gifts, perhaps even a rally.
Television panels light up with experts explaining how holiday cheer, football scores, and presidential politics will soon determine your returns. Unfortunately, the data remain stubbornly unenchanted.
The Santa Claus Rally
The tale goes that stocks reliably rise during the last five trading days of December and the first two of January, as though Wall Street’s elves punch in after Boxing Day. Between 1950 and 2020, that stretch did average a tidy 1.3% gain, according to SmartAsset. But in recent decades? The effect has faded, closer to a rounding error.¹
The likelier culprits are far more mundane: light trading volumes, year-end portfolio window-dressing, and a collective sigh of relief that the year is finally over. Santa may bring presents, but he doesn’t deliver alpha.
Sell in May and Go Away
If December brings Santa, spring brings slogans. “Sell in May and go away” - advice so catchy it’s practically a nursery rhyme. The claim: markets snooze from May through October. It once had statistical legs in post-war Britain, when brokers really did vanish for the summer social season.
Today? Global liquidity never takes a holiday. Investors who dutifully sold every May over the past decade would have missed several of the market’s strongest stretches.² As investment strategies go, this one belongs in a museum, next to tulip bulbs and Beanie Babies.³
Naturally, the inverse theory followed: stay out until Halloween, then jump back in for the real returns. Academic work once found some support for the pattern⁴, but like most arbitrage opportunities, it evaporated once discovered. In markets, once everyone brings the same costume to the party, the candy runs out fast.
The January Effect
Another crowd-pleaser suggests small-cap stocks tend to outperform in January, a bounce after year-end tax-loss selling.
It was true, for a while. Between 1979 to 2000, small-caps averaged 3.2 percent gains each January. Since 2000? Barely 0.1 percent.⁵
Greater market efficiency, lower trading costs, and crowding into the same trade drained the magic. The January Effect now lives where all retired anomalies go - in PowerPoint footnotes.
Year Three of a Presidency
Another crowd-pleaser suggests markets perform best in the third year of a U.S. presidential term, thanks to pre-election stimulus and general good vibes. Schwab’s numbers show that, yes, nine of sixteen cycles since 1950 did have their strongest returns in Year Three.⁶ But correlation isn’t causation, and fiscal policy isn’t fairy dust.
Modern markets react to interest-rate expectations, not campaign slogans. Betting on equities because of the Oval Office calendar is like picking stocks based on the moon phase (Which, for the record, someone has also tried).
The Super Bowl Indicator
Then there’s everyone’s favourite party trick. If an NFC team wins the Super Bowl, stocks will rise that year; if an AFC team wins, they’ll fall. In the 1970s and ’80s, it seemed spookily accurate, roughly 80 percent of the time. Of course, that’s also about the same success rate you’d get from flipping a coin and then claiming you meant it.
Fifty years later, the “indicator” has fumbled below 40 percent accuracy.⁷ It remains a great conversation starter and an even better reminder of how easily randomness dresses up as revelation. If your portfolio strategy depends on the Buffalo Bills, you may already be offside (no slight intended to Buffalo Bills fans, we’re fans in Toronto).
Why These Myths Persist
Because they’re fun. They offer rhythm in a world that refuses to keep time. They make volatility feel seasonal rather than existential. There’s comfort in thinking the market simply follows a schedule - rally here, dip there - rather than admitting it’s a swirling mix of expectations, liquidity, and human behaviour.
But every credible study says the same thing: once a pattern becomes popular enough to name, it stops working. Markets, like magicians, never repeat the same trick twice for the same audience.
A Better Year-End Tradition
As the champagne chills and headlines fill with festive forecasts, keep this in mind: markets don’t know what month it is. They respond to earnings, rates, and risk; not reindeer, presidents, or playoff brackets.
So, if you’re looking for a tradition worth keeping, skip the seasonality trades. Revisit your asset allocation instead. Evidence has a far better track record than rhymes and rituals.
Santa may bring gifts. Markets owe us nothing.
Footnotes
SmartAsset, “Santa Claus Rally: Does It Really Exist?”, 2020. Data shows average S&P 500 gain of ~1.3% over the final five days of December and first two of January (1950–2020).
Business Insider, “‘Sell in May’ Has Stopped Working,” May 2024. Analysis of S&P 500 returns 2013–2023.
Jacobsen, B. & Zhang, C. Y. (2012). “Are Monthly Seasonals Real? A Three-Century Perspective.” Review of Finance, 16(1), 271–314.
Andrade, S., Chhaochharia, V., & Fuerst, M. E. (2013). “Sell in May and Go Away Just Won’t Go Away.” Financial Analysts Journal, 69(4), 94–105.
Invesco, “The January Effect: Does It Still Exist?”, 2021. Small-cap January outperformance largely disappeared post-2000.
Schwab Center for Financial Research, “The Presidential Election Cycle and Stock Performance,” 2020. Data from 1950–2015 show Year 3 averaged ~16.4% S&P 500 returns.
WealthManagement.com, “The Super Bowl Market Indicator: Myth or Truth?”, 2024. Review of 50+ years of data confirms randomness.
This information has been prepared by Damir Alnsour, MBA, CFA, CFP®, FCSI® who is Head of Portfolio Management, Portfolio Manager, Financial Planner for Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc.
This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
