Why the stock market's painful December decline might actually be bullish for investors in 2023 – MarketWatch

The absence of a Santa Claus Rally on Wall Street tells us nothing about the stock market’s prospects in 2023. The U.S. stock market has done just as well following holiday seasons when there is no Santa Claus Rally as when there is.
That should provide some solace to investors who worry that Santa Claus will skip Wall Street this year. The Dow Jones Industrial Average DJIA, -0.85%, S&P 500 SPX, -1.11% and the Nasdaq COMP, -0.97% all are down in December so far.
There is no universal definition of when a Santa Claus Rally should appear. Some define that period as encompassing the entire month of December, while others focus just on the second half of the month. Still others define this period as the week between Christmas and New Year’s.
Regardless of how it’s defined, I found no statistically significant correlation between the stock market’s performance in the Santa Claus Rally period and its return during the subsequent year.
In fact, there is modest evidence that the stock market actually performs slightly better following market declines during the Santa Claus Rally period. This is illustrated in the accompanying chart, which is based on the definition of the Santa Claus Rally period as the second half of December.
Because the differences plotted in the chart are not significant at the 95% confidence level, you shouldn’t celebrate poor stock-market performance at Christmastime. But the chart nevertheless illustrates why the lack of a Santa Claus visit is not a reason for special concern.
What about this year in particular, with the major U.S. market averages suffering double-digit losses? To provide an answer, I focused on just those calendar years in which the Dow declined. The same overall pattern emerged as when I focused on all years.
Consider, for example, those years in which the Dow declined for the full year but rose in the last two weeks of December. In the subsequent year, the Dow gained 7.3% on average.
Following down years in which the stock market declined during the last two weeks of December, in contrast, the Dow posted a gain of 11.9% on average over the next 12 months. Once again, these differences are not statistically significant.
The bottom line? The current bear market may very well extend into 2023, and even beyond. But that possibility has become no more probable just because the stock market is struggling as we approach Christmas.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
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Mark Hulbert is a columnist for MarketWatch. His Hulbert Ratings service tracks investment newsletters that pay a flat fee to be audited.
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