Stocks Celebrate The Holidays

7/4/2016


The machines have not yet wrestled complete control away from human investors, so it's not surprising that seasonal anomalies still exist, especially around the holidays.

Even in an age of smartphones and constant access to the markets — maybe especially during that age — we need vacations to recharge our batteries. The New York Stock Exchange closes nine times each year for U.S. holidays. We reviewed the performance of the S&P 500 Index in the days surrounding six of those holidays. The results are presented in the table below.

More then one most wonderful time of the year
The Santa Claus rally is well known, but stocks also exhibit somewhat surprising tendencies around other holidays. Over the past 20 years, the S&P 500 has risen 60% of the time in the last day of trading before the Fourth of July, up 0.15% on average. But the index has risen just 40% of the time in the first day of trading after the holiday, averaging a decline of 0.01%. The S&P 500 has averaged a one-day price gain of 0.03% over the past 20 years, rising 53% of the time.
------ Before Holiday ------
------ After Holiday ------
Avg. %
Change
Winning
Percentage
(%)
Avg. %
Change
Winning
Percentage
(%)
Memorial Day
1-Day Change
(0.03)
45
0.18
55
2-Day Change
0.08
50
0.07
55
Fourth of July
1-Day Change
0.15
60
(0.01)
40
2-Day Change
0.31
65
(0.01)
55
Labor Day
1-Day Change
0.02
50
0.45
55
2-Day Change
(0.08)
50
0.44
50
Thanksgiving
1-Day Change
0.27
70
0.21
55
2-Day Change
0.09
65
(0.35)
35
Christmas
1-Day Change
0.25
50
0.09
65
2-Day Change
0.54
75
0.30
65
New Year's
1-Day Change
(0.26)
30
0.33
45
2-Day Change
(0.13)
40
0.50
70
Norm
Average Change (%)
Winning Percentage (%)
1-Day Price Change
0.03
53
2-Day Price Change
0.06
55

Holiday trends are worth knowing, but before you head off to make trading plans, keep these two facts in mind:

1) In most cases, stock movements around the holidays are too small to warrant a trading strategy — nor do these strategies work often enough to justify the risks.

2) We do not endorse this type of short-term trading. After all, market-timing tactics can cause investors to miss out on sudden upswings, while also incurring big tax bills and commissions.

The days leading up to the holiday closest at hand, the Fourth of July, have historically been kind to investors. The S&P 500 has averaged a 0.15% gain on the last day of trading before Independence Day. That compares to an average one-day gain of 0.03% in the past 20 years. For the two days before the holiday, the S&P 500 rallied 0.31%, on average. Interestingly, stocks tend to decline slightly in both the one- and two-day periods immediately following the Fourth.

Trends also emerge for other holidays. The S&P 500 tends to rally on the Wednesday before Thanksgiving, as well as the following Friday — but not the following Monday. Stocks generally fare poorly in the two days immediately before Labor Day and New Year's, yet they have historically performed well in the days after these holidays. Stock moves around Memorial Day are usually relatively small.

No holiday has treated investors better than Christmas. The market averaged a gain for all four trading periods we reviewed, something we found with no other holiday. Stocks have averaged a 0.54% gain in the two-day trading period before Christmas over the past 20 years — higher than any of the other holidays. Stocks also advanced more frequently in the two days before Christmas, rising three-fourths of the time.

A few underlying factors may explain some of these holiday moves:

• In the days leading up to New Year's, investors often sell off losing positions in stocks to claim capital losses.

• Independence Day coincides with the beginning of a new quarter, so investors may be recalibrating portfolios.

• The market's advance around Thanksgiving may spring from general optimism about the holiday season.

• Investor psychology also comes into play. If enough investors believe in the Santa Claus rally, it can become real.

We have tracked calendar abnormalities before. In our April 14, 2014, issue, we found that stocks tend to perform unusually well for six-month holding periods beginning in November and poorly for similar holding periods that begin in May. To access this and other back issues, visit www.DowTheory.com/Go/Index and look for the Back Issues section of the right column of the page.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com