Dow Jones Xmas-New Year Rally (History 1896 - 2014)
As one can see from the chart above, December’s average return is higher than that of many other months. Since 1896, when the Dow Jones Industrial Average was created, for example, the Dow has gained an average of 1.4% in December, in contrast to an average of 0.6% across all months.
But, given the wide variability in monthly returns, statisticians are unable at the 95% confidence level to conclude that this difference is statistically significant. It turns out, for example, that July’s average return is slightly higher than December’s.
The one definition of the Santa Claus rally that enjoys statistical support is based on seasonal strength between Christmas and early January. That period actually benefits from two seasonal patterns, not one, each of which has been well-documented in other contexts: the so-called “turn of the month” and “turn of the year” effects.
Since 1896, for example, the Dow between Christmas and New Year’s has risen 76% of the time, producing an average gain of 1.03%. That compares with an average gain of only 0.10% across all other trading periods since 1896 of similar length, over which the Dow rose just 55% of the time. On both counts, this definition of the Santa Claus rally is statistically significant.
source: MarketWatch, M. Hulbert: http://www.marketwatch.com