Santa Claus and New Year's Day Conclusion

Both the S&P 500 “wagers” concluded at 4 PM on January 5th. Based on the analysis of the S&P 500 index since 1950 we would have expected to return a profit by buying on both Christmas and New Year’s Eve. We would have expected an average return of 1.7% from the purchase on Christmas Eve with a 75% of a positive return. The New Year’s Eve purchase (with a much shorter holding period) had an expected return of 0.6%, with an 87% chance of a positive return.

The Santa Claus rally was a loser, down 2.9%.. In fact, only 2 of the 64 years were worse, 2007-08 and 1999-00.  So, what did the future hold for these two years?  In that fateful 2008, the S&P dropped another 4.6% by January 30th.  In 2000, the index was down by another 6.7% by January 30^th. Interestingly, both rallied by over 1.5% on the 31^st.

The New Year’s Eve wager was also a loser. The S&P 500 was down most of the day on January 2^nd. Just before 4 PM, it turned positive. Had it stayed there, that would be a sell signal for a minimal gain. But it went negative meaning hold for the next day. Well that was a disaster, and the wager lost 1.9%.

Since both were down, it was tempting to hold on a little longer and hope they recover over the next few days. But that wasn’t the original plan, and it’s time to implement the new investment plan by purchasing assets in proportion to the allocations that I established.  So I sold and took the losses.