Santa Claus Came to Town

Jolly old Saint Nick managed to drop a load of holiday cheer on Wall Street this year. What's behind this annual outpouring of buying sentiment? Santa Claus theorists have several opinions.

Jolly old Saint Nick managed to drop a load of holiday cheer on Wall Street this year, capping off a rally that saw the major stock indexes finish near their highs for the year. The so-called Santa Claus rally, which usually runs from the weeks before Christmas to New Year’s Eve, has produced above-average gains in seven of every 10 years, going back to 1900.

What’s behind this annual outpouring of buying sentiment? Santa Claus theorists have several opinions, with some wits claiming that’s because all the pessimists go away during those weeks. Others say it’s tax-related, as stock buyers pick up bargains that have been dumped by investors looking to write off stock losses. Still others think it’s because stock buyers are anticipating the January effect, another annual stock spurt that Wall Streeters watch for. And some say it’s all just an excess of holiday good spirits.

Whatever the reason, Santa made sure that this year was no exception to his annual party, as the S&P 500 notched a gain of 34.54 points, or 3.16%, between its December low on the 8th and Christmas Eve. In the week between Christmas and New Year’s, the S&P actually hit its high for the year on the 29th, but on New Year’s Eve it dropped a full percentage point. Still, the S&P was up almost 183 points for the year, a gain of close to 20%, and from its low of 666.79 in March, the average gained almost 450 points, or 67.2%. One negative note: Another 20% gain in 2010 will leave the S&P 500 still about 200 points shy of its all-time high.