Investors hope for a Santa Claus Rally this time of year. And some S&P 500 stocks deliver a gift to them whether Santa shows up or not.
Seven stocks in the S&P 500, including Warren Buffett pick Occidental Petroleum, Diamondback Energy and Amazon.com, consistently outperform during the last five days of the year and first two in January. That's the period of time the S&P 500 typically gains as part of the Santa Claus Rally, says "Stock Trader's Almanac," which first discovered the pattern in 1972.
All seven of these stocks beat the S&P 500 during the Santa Claus Rally period the past five straight years. And they also posted average gains during the period of 5% or higher. That's a remarkable gain in such a short period of time — roughly half the S&P 500's typical annual rise in just a few days.
"Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet, respectable rally within," the Almanac said.
Why Santa Claus Is So Important To S&P 500
The Santa Claus Rally is one of those gifts investors look forward to. And that's for several reasons.
The S&P 500's average 1.3% gain in the period is usually a nice kicker to the year. But more importantly, when there's not a Santa Claus Rally, that's usually a tip off for a rough year ahead. For instance, Santa didn't come in 1999 when the S&P 500 fell 4%. Shortly after in early 2000, the Dow Jones Industrial Average kicked of a 33-month drop, the Almanac said.
More recently, the S&P 500 failed to gain from Dec. 27, 2021 through Jan. 4, 2022. And right on cue the S&P 500 fell into a bear market in 2022.
Santa Claus Rally S&P 500 Winners
Buffett will be happy to hear his big energy play, Occidental Petroleum, is a big winner during Santa Claus rallies. The stock gained 7.5%, on average, during the past five Santa Claus Rally periods. That's a higher gain than any other S&P 500 stock. Shares are already up 118% this year, so it'll be interesting to see if more gains are in the offing.
Also, playing along with the energy theme is Diamondback Energy. The Midland, Tex.-based energy exploration firm has never once fallen during the Santa Claus Rally period. And it's gained an average of 7.3% during the time, second only to Occidental.
One Santa Claus favorite that makes logical sense is retailer Amazon.com. Given that December is a make-or-break period for retailers, it's not surprising to see the e-commerce giant post an average annual 5.1% gain during the last five days of the year and first two of January. Amazon.com could use a lift, as its shares are down nearly 50% this year.
Should You Believe In Santa Claus S&P 500 Rallies?
Why would the S&P 500 rally in the last five days and the year? That's up to debate.
"The best explanation we have ever heard for believing in Santa Claus rallies is that they are caused by a combination of the end of annual tax loss selling and the lower volumes which occur around the holiday week and into New Year's Eve," said Nicholas Colas of DataTrek Research.
"Investors sell losers in December to offset any capital gains. By Christmas week, they are usually done. This leaves the market with a short period of buy order imbalances pushing up against light volumes."
Whatever the reason, investors are hoping the mysterious appearance happens again this year.
Santa Claus' Favorite Stocks
These stocks topped S&P 500 in each of past Santa Claus Rally periods by 5% on average or more
| Company | Ticker | Average gain during Santa Claus Rally period | Sector |
|---|---|---|---|
| Occidental Petroleum | 7.5% | Energy | |
| Diamondback Energy | 7.3% | Energy | |
| General Electric | 7.1% | Industrials | |
| Hess | 7.0% | Energy | |
| Marathon Oil | 6.9% | Energy | |
| Amazon.com | 5.1% | Consumer Discretionary | |
| Pioneer Natural Resources | 5.0% | Energy |
