It’s the most wonderful time of year.


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Usually around this time temperatures are dropping, it’s starting to snow and you’re likely running around trying to finish off that last bit of holiday shopping, but have you ever wondered what the holidays are like on Wall Street?

There are many different types of companies on Wall Street, including investment banks, brokerage firms and private equity firms. It’s business as usual for these companies during the holidays, and the employees at these firms are more likely to spend their Christmas Eve in front of Excel rather than a Christmas tree.

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In fact, if you work at a prominent firm, you’re expected to be available during the week from Christmas to New Year, just in case something comes up. Around this time of year, time off is available for finance professionals, but there’s very little in the form of a true “holiday”. Remember, money never sleeps, especially not on Wall Street.

As for the markets themselves, they’ll stay open – with the exception of Christmas Day and New Year’s. Additionally the markets operate with reduced hours on Christmas and New Year’s Eves. While you can trade on these days, they tend to see a lot of volatility, with trading volume being light and it may be harder to get orders filled out.

What happens to the stock market around the holidays?

Even the stock market gets into the festive mood during the holidays.

Markets run in cycles, and sometimes they behave in predictable ways. Between Christmas Eve and New Year’s Day, there’s a phenomenon known as the Santa Claus rally, where investors will often see a surge in the price of stocks. Children aren’t the only ones receiving presents this time of year.

A Surge in price is always nice (see what I did there), but why does this happen?

A number of reasons have been put forward to explain this recurring rise in equity prices. It may be that the holiday season puts people in a buying mood, or they are looking forward to the rise in stock prices that usually occur in January, creatively known as the January effect.

Others suggest that people may be investing their Christmas bonuses, or are taking tax considerations into account.

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Photo Source: money.cnn.com

Whatever the reason, the Santa Claus rally is real. Between 1969 and 2015, the Santa Claus rally has yielded a positive return in 34 out of the 45 possible years. Even if you look at data going back to 1896, the Dow Jones has risen 77% of the time during this period.

One thing to note is that when the Santa Claus rally backfires, there can be a resulting drawdown in the month of January. A 4% decline during the Santa Claus period in 1999 was followed by a 33-month decline in the S&P500.  Looks like someone was definitely naughty that year.

How are we doing right now?

So far, 2016 has been a decent year for the S&P 500, posting a 10% return Year-to-Date. This, after a lackluster 2015.

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Photo Source: money.cnn.com

Zoom out a bit though, and we see that the bull market following the Great Recession of 2008 has lasted more than 7 years, tripling in value in the process. All that to say, it’s getting a bit long in the tooth. Any older and this bull market might end up sporting a white beard like St. Nicholas himself.

This recovery is actually the second-longest bull market on record, lasting over 2800 days. It’s got a ways to go before it takes number one spot though. The longest bull market in history lasted 4,494 days – from April 1987 to March 2000.

It’s not all candy canes and gingerbread houses though. Many investors are concerned about an impending recession, and who knows what will happen in 2017. People are worried about negative earnings growth. Companies are earning less than they did in previous years, with a higher share of those earnings coming from overseas. Ordinarily that wouldn’t be a problem, except a rising dollar means those overseas earnings are now worth less if you bring them home.

Finally, central bank policies involving negative and ultra-low interest rates around the world mean that the global economy is precariously placed going into the New Year.

Tis the season to watch carefully for what markets do next!

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