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Highlights
- Santa Claus Rally refers to a phenomenon wherein the stock market rallies in the last weeks of December and early January
- There is no established consensus on when the Santa Claus Rally starts
- Many things are theorized to be the causes of Santa Claus Rallies
First, to get something out of the way; no, a Santa Claus Rally is not a mass gathering or protest of men in red suits shaking their bellies like a bowl full of jelly when they laugh. When it comes to investing, a Santa Claus Rally refers to a phenomenon wherein the stock market rallies in the last weeks of December and early January.
There is no established consensus on when the Santa Claus Rally starts. In 2021, talk of a much-anticipated Santa Claus Rally began as early as mid-October when the TSX Composite Index posted its then-record closing high and subsequently breached the 21,000 points mark. However, the Omicron scare in late November and early December derailed that a bit.
What is Santa Clause Rally & will TSX see one in 2021?
What causes a Santa Claus Rally?
Many things are theorized as the causes of Santa Claus Rallies and it is quite likely that it is no singular factor. One of them is considered to be tax loss selling.
Tax loss selling is when an investment that has underperformed all year may be sold off in order to offset capital gains with regards to tax owed at the end of the year. This year, the last day of tax loss selling in Canada is December 31, as in the trade of the investment must be settled by the date.
Also read: 3 Canadian penny stocks to buy before Christmas holidays
Another likely aspect is there is more cash in the market because of holiday bonuses, which some may choose to invest and others spend, either way, it’s a hopeful season for the market.
Some also argue that with institutional and veteran investors going off on vacation, an opportunity is created for retail investors, who tend to be, shall we say, less bearish, generally speaking.
Also read: 2 Canadian food stocks to buy as holiday season hits
Bottom line
It is no given that a year will experience a Santa Clause Rally, and as we saw in late November and early December, unforeseen circumstances can put a swift end to expectations. Reportedly, since the 1960s, over two in three Decembers have experienced Santa Claus Rallies.
Apps like Qtrade, Questrade and Wealthsimple have made it much easier for retail investors to partake in the stock market. If they could pick up stocks before the rally occurs, there may be money to be made.
The TSX Composite Index’s biggest player, Shopify Inc. (TSX:SHOP), is, in fact, a retail stock. The retail sector is arguably the MVP or one of the most important sectors of the holiday season. Other point-of-sale stocks could do well if there’s a good holiday shopping season to be had, but that is no guarantee.
Also read: 5 Canadian retail stocks to buy as we head into holiday season
