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Will There Be Santa Claus Rally 2022?

2022 is going to be a terrible year for the stock market. The stock market fell almost from the beginning to the end of the year. The Nasdaq Composite is down 26.74% for the year, and the S&P 500 is down 14.57%. The Dow Jones Industrial Average is the best performer, down just 5.25% for the year after its latest rally. The U.S. stock market has entered the last trading month of 2022. Will there be a Santa Claus Rally that everyone has been looking forward to in December? This article will analyze the stock market in December from multiple dimensions.

(Disclaimer: The content of the article only represents personal investment opinions and does not constitute investment advice)

What is the Santa Claus Rally?

“Santa Claus Rally” refers to the U.S. stock market usually rising sharply in the last five trading days at the end of the year and the first two trading days of the new year. Since 1969, the S&P 500 has risen an average of 1.3% during the seven-day “Christmas market.”

The performance of the stock market throughout December is also usually outstanding. The chart below shows that the average return for the S&P 500 in December from 1950 to 2021 is 1.42%. That is better than most months. In the 72 years, the S&P 500 index rose in December in 54 years, and only 18 times did the S&P 500 index fall in December.

Santa Claus Rally History
Santa Claus Rally History

Why there is a Santa Claus Rally?

The reason for the Santa Claus Rally is very complicated, and there is no definite conclusion.

Behind this “magic” effect is the adjustment of funds by institutional investors before the holiday. Of course, it is also related to the general optimism and festive atmosphere in the market:

  1. Investors enthusiastically buy stocks because of the effect of the stock market rising in January usually.
  2. The reduction in liquidity during Christmas and New Year magnifies the upward effect.
  3. The festive atmosphere of the holidays and the high consumption enthusiasm stimulate the economy.

Conversely, if the market fails to rally during these seven days, it could be a warning sign – indicating further market weakness early next year. In the past 20 years, there have been five times “Santa Claus Rally” that did not appear as expected. The stock market fell in January of the following year all five times.

Will there be a Santa Claus Rally this year?

First of all, let me talk about my point of view. I still think it has a good chance of a Santa Claus Rally this year. Let’s analyze the market from several dimensions:

Analysis from the perspective of Fed policy

In 2022, the most important macroeconomic problem is high inflation in the United States. The Fed can only reduce inflation by continuously raising interest rates and implementing quantitative tightening policies (Q.T.) to solve the problem of high inflation in the United States. The main factor affecting the stock market this year is the policy stance of the Federal Reserve. On November 30th, 2022, Federal Reserve Chairman Powell delivered a speech. The main contents of his speech include:

  1. Interest rates will continue rising, the terminal interest rate level will be slightly higher than expected in September, and there will be great uncertainty.
  2. The Fed will slow down the pace of raising interest rates in December at the earliest, and they don’t want to break the economy by excessive tightening. The economy may have a soft landing, no recession.
  3. Sufficiently restrictive policies have made substantial progress and will remain so for some time.
  4. The Fed will not cut interest rates in the short term and will stop Q.T. at a safe level.

Compared with Powell’s previous statement and other Fed officials such as Brad’s statement, Powell’s expression appears relatively dovish this time.

Powell’s usual statement: “The Fed will stop inflation at all costs.” This time he changed the words to: “I don’t want excessive tightening to break the economy.” Powell also mentioned stopping Q.T., which was unexpected by the market and is also one of the main signals that the market believes that the Fed chairman has turned dovish. After Powell’s speech, the three major U.S. stock indexes rose sharply.

Powell’s speech set a dovish tone for the Fed’s policy for the rest of the year, which is one of the critical factors for the Santa Claus Rally in the U.S. stock market this year.

Analysis from the perspective of economic data

There are two critical economic data recently. One is the November nonfarm payrolls report and unemployment rate data released by the U.S. Bureau of Labor Statistics (BLS) last Friday. One is the CPI data that will be released on December 13th.

In the nonfarm payrolls report released last Friday, the number of nonfarm payroll employment in November increased by 263,000, higher than the expected 200,000 and the previous value of 261,000. That caused the three major stock indexes to plummet after the data release.

Related reading: Nonfarm Payrolls Good News is Bad For Stock Market 2022?

However, a better-than-expected nonfarm payrolls report is not all bad news. It also shows that the U.S. economy is still strong, reducing market concerns about recession. Also, a nonfarm payrolls report is not enough to change the Fed’s stance. The CPI report for November is more important. A Santa Claus Rally is more likely if we can see cooling inflation in the upcoming CPI data.

Technical analysis

Technical Analysis - NQ
Technical Analysis – NQ

The picture above is a candlestick chart of E-mini Nasdaq-100 futures (N.Q.). We can see that the Nasdaq-100 future still exceeds the 5-day moving average. The 5-day moving average is a strong support level, which can have a relatively strong support effect on the Nasdaq index.

We also want a better candlestick pattern to show that a Santa Claus Rally is coming. A long green candlestick was formed after Powell’s speech last Wednesday. Since then, a group of small-bodied candlesticks occurred. A relatively perfect rising three methods pattern can be formed if another long green candlestick can appear today and tomorrow. This way, there will be a greater probability of a Santa Claus Rally this year.

Possible risks

Of course, no one can predict the market with complete accuracy. There are many uncertain factors in the market. For example, if the CPI data released on December 13th is bad, showing that U.S. inflation has not cooled at all, it may cause the stock market to plummet. In addition, the Dow Jones Industrial Average has rebounded a lot this round, and it may not have enough momentum to continue to rise. These could all contribute to the absence of a Santa Claus Rally this year.


The U.S. stock market has caused many investors to lose money this year, and everyone hopes to earn some pocket money in the Santa Claus Rally at the end of the year. This article analyzes the market from my views, hoping to help you invest and trade. If you want to know more about stock market analysis and strategies, you can visit Canny Trading.

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