What do you call a bankrupt Santa? Saint Nickel-less! For this Christmas Eve special, Josh and Austin talk about the phenomenon called a Santa Claus Rally. Not only do they describe why one might happen, they also talk about their predictions on whether 2020 will end with one. Merry Christmas from the Invested Dads!
Main Talking Points
[1:21] – What is a Santa Claus Rally?
[2:55] – Optimism in the Market
[3:30] – Holiday Bonuses
[4:36] – Conspiracy Theories
[5:50] – Dad Joke of the Week
[6:55] – Stats on the Santa Claus Rally
[8:08] – This Year?
[9:36] – Have a Plan
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads podcast, simplifying financial topics, so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to the Invested Dads podcast, the podcast where we take you on a journey to better your financial future today, because tis the season.
Josh Robb:
It is.
Austin Wilson:
The season is upon us of Christmas time. In fact, it’s Christmas Eve.
Josh Robb:
Yes.
Austin Wilson:
That’s something joyful, and I’m excited about that. So we are going to be discussing the phenomenon known as a Santa Claus rally.
Josh Robb:
Yes. Every time I picture that, I see people in the streets with picket signs, “no more coal,” “being good is relative,” those type of thing. That’s the Santa Claus rally, right?
Austin Wilson:
Yeah, I was thinking of something about eating too many cookies, where you just rally. You rally around your teammates, and you just plow through that plate of cookies.
Austin Wilson:
So anyway, yeah, nice try. It is cookie season. It is Santa Claus season. However, dang, I need a cookie right now. Why do we always record this when I’m hungry?
Josh Robb:
It’s you’re always hungry.
Austin Wilson:
I am always hungry. So yeah, it is cookie season though.
[1:21] – What is a Santa Claus Rally?
Josh Robb:
Yes. So what are we actually talking about? So a Santa Claus rally is a term within the financial industry that relates to this time of year.
Austin Wilson:
You are not wrong. So when the markets perform well, generally up, so in a sustained move during the last week of December and the first couple of trading days of January, this is called a Santa Claus rally. So there are a number of reasons why this does or can happen. So number one, tax considerations. So suppose at the end of the year, at some point, you harvested some losses, but you still wanted to participate in the market. So you took your money and bought something else.
Josh Robb:
We actually talked about that in an episode.
Austin Wilson:
So yeah, if you want to learn more about tax loss harvesting or tax planning in general, we’ll link an episode that we just put out in the show notes for that. But when you do that buying, buying something else, that buying causes stock prices to go up.
Josh Robb:
Yeah.
Austin Wilson:
So that’s one reason that could be causing what happens often in the markets around this time of year. Another one is when people buy. So like I said, buying makes stock prices go up. Buying, anticipating what’s another phenomenon called the January Effect.
Josh Robb:
Man, there’s so many.
Austin Wilson:
I know. So really the January Effect is when people are buying back in early in the year, sending prices up after harvesting losses at the end of the year. So there’s two different ways you can look at it. But it’s all tax related, at the end of the day, those couple options of why this could be happening.
Josh Robb:
Are we going to do an episode on the Groundhog effect, where you just keep buying the same thing over and over? Well, if you’re buying, buying, buying, it’s always a good time to buy. It’s always a good time to buy.
[2:55] – Optimism in the Market
Austin Wilson:
So another reason that you could have what’s called a Santa Claus rally, it’s just general optimism about the market. And as we’re sitting here in 2020, the market’s doing okay. All things considered, with COVID going bonkers and things not looking great on that front, the market’s pretty healthy. The market’s at all-time highs, and everything seems to be working pretty well in the markets right now.
Josh Robb:
And we’re seeing the rollout of the vaccine. I think Europe’s already been handing that out. And so, the idea there, as you know, as we head that direction more and more people are getting that protection to help, hopefully, reduce the number of cases and deaths, especially.
[3:30] – Holiday Bonuses
Austin Wilson:
Exactly. Another potential reason is actually the investment of holiday bonuses. So a lot of, and most, traders and managers on Wall Street, specifically, they’re paid pretty substantial portions of their salary in the form of bonuses at the end of the year, that’s based on a couple of factors. Number one, market performance, which isn’t really anything they can control. Both market had a good year, then their business probably had a pretty good year as well. And B, likely business performance, maybe they executed well as well. So when those traders get this income, most of them feel the best use for, at least, a lot of it is in the markets. So when you put that money in the market, that’s again buying, buying, buying. And when you buy, prices go up.
Josh Robb:
Yep.
Austin Wilson:
So I also think if you would have told anyone on Wall Street that we would have this crazy stock market come back and stocks at all time highs in the midst of a COVID pandemic, that they would have laughed when you said that they were probably going to get a decent bonus. All the traders on Wall Street, they were going to be like running for the hills. But it actually turned out to be probably a pretty good year for a lot of investment bankers and stuff like that.
Josh Robb:
Definitely.
[4:36] – Conspiracy Theories
Austin Wilson:
All right, conspiracy theory time. Some believe that this also occurs because many of the institutional investors, the larger institutions, tend to take time off this time of year. Maybe they’ll go be with family in their lake house, or probably not their lake house, maybe the beach. Probably not a lake.
Josh Robb:
Yeah, unless it’s a lake in the sun.
Austin Wilson:
Unless it’s a lake in the South.
Josh Robb:
Yeah.
Austin Wilson:
Yeah, so a lot of these guys might take some time off. And these large institutional investors are typically more bearish than your retail investors or your smaller investors. And those retail investors are the ones driving the market during that time. And that’s going to bid prices up as well. So that’s not proven, but that’s a theory.
Josh Robb:
And I subscribed to the idea that people’s attitudes are a lot better right now as well. So the concept of… you talk about the more retail investors, but in a holiday season, you’re buying presents, you’re seeing family, in most normal years. You’re in a good mood. And so, I think that attitude plays into your optimism and it pushes you to say, “You know what? I do think things are going better than I would’ve probably thought midway through the year,” or something.
Austin Wilson:
And optimism bids the prices up.
Josh Robb:
Huge.
Austin Wilson:
Oh yeah. So it’s wonderful.
Josh Robb:
All right. Let’s pause. So now, we know what the Santa Claus Rally is.
Austin Wilson:
True.
[5:50] – Dad Joke of the Week
Josh Robb:
So let’s take a dad joke break.
Austin Wilson:
Is this like your Christmas present [crosstalk 00:00:05:59]?
Josh Robb:
I got a dad joke for you. And it’s more of a question, probably relevant. Because I need to know, what do you get someone who has everything? A burglar alarm. Because they have everything. You don’t want them to steal anything. You need a burglar alarm.
Austin Wilson:
Oh, that is so funny. Yes.
Josh Robb:
Because if you have nothing, what are you protective?
Austin Wilson:
There was this-
Josh Robb:
Who has nothing.
Austin Wilson:
I don’t remember what show it was on, Rules of Engagement, that was an old show that we used to be on. I love-
Josh Robb:
Yes, it was a funny show.
Austin Wilson:
So David Spade and Patrick Warburton, fun fact, they’re hilarious. They are Kusco and Kronk…
Josh Robb:
Right, right. Yep.
Austin Wilson:
… on Emperor’s New Groove. So when you watch that now, you’re like, dang, this is even better. But I think I forget… one of the other…
Josh Robb:
His dry sense of humor is hilarious.
Austin Wilson:
Yes. Yes. And he’s got a deep voice.
Josh Robb:
The voice, yeah.
[6:55] – Stats on the Santa Claus Rally
Austin Wilson:
And it’s so funny. But the younger couple… I forget their names. I can picture them, but I forget their names. They had their house robbed and no one stole anything. Because they had nothing worth it, nothing worth anything. I thought that was really, really funny. So yeah, back to the Santa Claus Rally. So let’s talk about some statistics over this period of time. And it’s kind of funny. So I was looking stuff up for this and preparing for this episode. And I found some statistics and I was like, okay, this is great from Investopedia. But when I added up the numbers, they didn’t hang. So we’re going to link this to the show notes. And I had to manually calculate some of these myself. It was interesting. So since-
Josh Robb:
Just say, it’s due to rounding in the-
Austin Wilson:
Due to rounding. Yeah, it’s like a big asterisk, you can put on anything. So since 1969, this period that we’ve been talking about, so the week leading up to Christmas into the first couple of trading days of January, has generated positive returns, 36 of the past 50 years.
Josh Robb:
Okay.
Austin Wilson:
So that’s 72%. That’s pretty good. That’s actually more than average.
Josh Robb:
Yes.
Austin Wilson:
And the average return over this period has been around 1.4% cumulatively over that time, with positive returns, typically in all seven of those trading days during the rally.
Josh Robb:
Wow, interesting.
Austin Wilson:
Now, if you remember, I’m thinking like 2018, most recently.
Josh Robb:
That was that good.
Austin Wilson:
Not a good last couple of days of the year. So that’s one that took down that statistic a little bit. But overall, generally pretty positive. So I guess that’s where we’re at.
[8:08] – This Year?
Josh Robb:
Yeah. So what do you think this year then? I mean, we had a pretty crazy year. COVID, it’s still here. What do you think? What are your predictions?
Austin Wilson:
I’m going to put the disclaimer out there, like I should probably should, that I don’t know for sure what’s going to happen in anyone who does, should probably be fired.
Josh Robb:
Yeah.
Austin Wilson:
But also, I can say that the market has done things that were unpredictable, this entire year. From a sell off to a rebound to all-time highs. Some of those things just haven’t really made a lot of sense. But overall I think sentiment, how people feel about what’s going on in the market and the health of the market and things like that. And having a light at the end of the tunnel with vaccines and stuff like that, I think is pretty good. So I would not be surprised if we got… there’s no guarantee, but it wouldn’t be surprising to me, with the way the market’s been handling itself lately, if there was a Santa Claus Rally at the end of year. Do you have any thoughts on that?
Josh Robb:
Like you said, with everything going on, it really just takes one news headline to move it either direction. And so, I think this year has the most volatility when it comes to headline risk for our Santa Claus Rally, up or down. But in general, like you said, with everything moving the right direction, I think, probably 72% chance that it happens.
Austin Wilson:
Plus or minus.
Josh Robb:
Rounding errors. Just historically speaking, I just think there’s a good chance, you get something weird happen.
[9:36] – Have a Plan
Austin Wilson:
So Josh, what should listeners do during this period?
Josh Robb:
Yeah. So this period, the same as any other period in that you should really just have a plan with your financial advisor. And so, when we’re talking about a Santa Claus Rally, we’re really just talking a handful of days. And if you’re a long-term investor, it’s really irrelevant. You shouldn’t be trying to time in and out of the market based on those type of trade, I don’t even know what you call it, theories. Santa Claus-
Austin Wilson:
Phenomenons.
Josh Robb:
Phenomenons, yeah. So in general, if you have cash, and you have long-term mindset, and you have the ability to take risk, is now a good time to invest? Yeah. So was two weeks ago…
Austin Wilson:
Exactly.
Josh Robb:
So was three years ago. Long-term perspective just means, get the money in and get it compounding. So…
Austin Wilson:
Timing this potential or it could or could not happen, Santa Claus little Rally. This little 1% bump, maybe at the end of the year or whatever, it’s inconsequential…
Josh Robb:
It is.
Austin Wilson:
… in your 30, 40, 50 year plan. Even a shorter term.
Josh Robb:
And you may be participating in it without realizing it. So like we talked about in the tax loss harvesting, if that’s something you do at the end of the year to generate that, chances are you’re buying a placeholder and doing what we’re talking about here and helping to kind of boost that Santa Claus Rally.
Austin Wilson:
I would probably advise that you should not count on this to be a game changer for your financial outcome.
Josh Robb:
Yes. Because if you need this today-
Austin Wilson:
Don’t risk the house on a Santa Claus Rally. That would be quite unfortunate.
Josh Robb:
Yeah.
Austin Wilson:
So yeah, like you said, if it was a good time before the end of December to buy stocks for your financial plan, it probably still is regardless. So just keep doing what you’re doing. And really how you navigate all of these potential Santa Claus Rallies and January Effects and rallies-
Josh Robb:
February is Ground Hog Day where you find the same thing over and over.
Austin Wilson:
Exactly. All you-
Josh Robb:
I made that up.
Austin Wilson:
I know, but you’re going to get a little rights reserved copyright, Josh Robb. What you do is you set up that automatic, systematic investing, where you put the same dollars or percent or whatever it is into your account every single month. And you just don’t think about it, just let it go. And then, some days you’ll buy it when it goes up, some days you’ll buy and when it goes down. But at the end of the day, you’re buying it a long time…
Josh Robb:
And you’re averaging it out…
Austin Wilson:
You’re averaging it out and you’re going to compound. So yeah, that’s our advice, is don’t count on the Santa Claus Rally, whether we get one or not to make a difference. However, it’d be great. And everyone would love to see a nice little bump at the end of the year. So yeah, if it’s time to buy stocks for you, it’s time to buy stocks for you.
Josh Robb:
That’s right. All right. So, well, thank you very much, Austin, for filling us in on the Santa Claus Rally. Sometimes, we forget that there’s these terms in our industry that maybe people hear and don’t understand, or aren’t as familiar with because they’re not living it day in and day out. So if you guys have any questions or thoughts, or you hear something like that and want to know, Hey, what is that? Shoot us an email at hello@the investeddads. We’d love to talk about those topics. Austin, what else can they do?
Austin Wilson:
Yeah. Well, first of all, as always check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep you on track, to meet your long-term goals. It’s free. It’s a nice PDF. It’s on our website. Check that out. You can also subscribe. We’d love it if you’d subscribe. And then hopefully, you can get an alert when our episodes come out, every single Thursday. We’d really appreciate it if you’d leave us a review, specifically, on Apple podcast. Because that will help us to show up in rankings and help a lot more people out. Yeah, and if you liked this episode or had someone asking about what this is.
Josh Robb:
Or knows Santa and he was asking.
Austin Wilson:
He might’ve been asking. Share this episode, click that share button, share with friends and family. Otherwise, just tune in next week because we’ll have another one.
Josh Robb:
Yep. Merry Christmas.
Austin Wilson:
All right, Merry Christmas.
Outro:
Thank you for listening to The Invested Dads podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
