Why Apple Stock Could Be on the Verge of a Santa Claus Rally

• Legend has it that stocks rally in the few days around Christmas, a phenomenon often referred to as the “Santa’s Rally”.

• If markets are supposed to be efficient, it’s hard to think that Santa’s rally is more real than the bearded man inhabiting the North Pole himself.

• Still, history suggests there may be something to the story, at least as far as Apple Stock (AAPL) – Get a free report.

Figure 1: Why Apple Stock Could Be on the Verge of a Santa Claus Rally

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Apple Stock: Maybe Santa Claus is real

According to Investopedia“a Santa Claus rally describes a sustained rise in the stock market that occurs [either] in the week before December 25” or “the week after Christmas until January 2”.

But the site itself seems to discredit the notion by observing that the S&P 500 (SPY) has historically produced average returns of +0.39% in the week to Dec. 25. That number, annualized and compounded, is still a very respectable 22% – but hardly a rally.

Not satisfied, I decided to run my own numbers, this time on Apple stock. I went back to the beginning of this century and looked at the patterns of returns in the following sequences of five trading days:

1. Any random five-day period
2. The five-day period preceding December 25
3. The five-day period following December 25

Since 2000, Apple stock has averaged +0.64% over any five-day random trading period. Not surprisingly, the distribution of potential outcomes was surprisingly wide, as shown in the histogram below: a high of 30% in 2000 and a low of (are you ready?) -58% later that year. !

Figure 2: Histogram: 5-day returns in AAPL since 2000.

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In the five days leading up to Christmas, Apple’s stock return over the past 22 years was (drum roll…) +0.94%. This number is 30 basis points higher than the random average of any five-day period, about 1.5 times better than the long-term norm.

The median (as opposed to the average, or average) was much better just before December 25: +1.83%. This type of performance is more than twice as high as the median over the year of five-day returns.

As for the extremes, the worst pre-Christmas returns occurred as recently as 2018: -10.4%, as the stock market as a whole suffered in the fourth quarter of this year. The best performance came in 2009: +9.0%, as stocks continued to rebound from the Great Financial Crisis of 2008.

Beyond December 25, five-day post-Christmas returns averaged an impressive +1.68%. This is a performance nearly three times higher than the random period average. At the median, however, the gains drop to +1.32% – still pretty solid.

Figure 3: 5-day average return of Apple stocks since 2000.

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Interestingly, Apple stock returns after Christmas have rarely been very disappointing. In the worst case, AAPL lost -2.6% in 2013. At the other end of the spectrum, stocks soared +9.1% in the days after Christmas 2001.

Of course, all of the above could just be coincidences. A sample size of 22 since the year 2000 is important, but the possibility of pure “noise in the dataset” is something to consider.

AAPL: Should you ask Santa for a rally?

I’m inclined to think there might be something to Santa’s gathering. At least history leaves that door open.

Fundamental reasons why Apple shares could outperform around December 25 include:

1. Long-only institutional investors are starting to establish positions for the coming year, in some cases before portfolio managers leave the office to take advantage of some down time.
2. The post-launch period of the iPhone from September to November tends to be more bearish for Apple. Late December can be a good time for bargain hunters to start buying the dip.
3. Trading volume is generally lower around the year-end holidays. Any uptrend during this period (remember, AAPL tends to produce positive returns, on average, in any given five-day period) could be amplified when trading volume is low.

That said, I wouldn’t make the decision to buy Apple stock solely on the possibility of a Santa Claus rally materializing in the next few days. At best, the timeline can help judge a potential investor who had already considered buying stocks for other, more fundamental reasons.

(Learn more about Apple Maven: Apple Stock: What Rising Interest Rates Mean for Investors)

Ask Twitter

History suggests that, at least as far as Apple stocks are concerned, there may be something to the “Santa Gathering” legend. Do you think AAPL is positioned to climb through the end of 2022?

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(Disclaimer: This is not investment advice. The author may be as long as one or more stocks mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence editorial content. Thank you for supporting Apple Maven)