What Happens to the Stock Markets During the Christmas Holidays?

By Kirsteen Mackay


As 2021 comes to an end should investors expect the market to rally into 2022 or is it time for a festive slumber?

Santa Rally - Source: Adobe Stock Images

With Christmas Day falling on a Saturday this year, the stock markets are largely unaffected by holidays. The New York Stock Exchange (NYSE) will be closed on Friday, December 24, and New Year’s Day, January 1, 2022. Other than that, it will be business as usual. Meanwhile, the bond markets will close early at 2pm on December 23 and December 31.

The regular trading hours for the NYSE and NASDAQ are 9:30am to 4pm Eastern on weekdays.

So, as employees and investors wind down for the holidays, should we expect the financial markets to do the same?

Not necessarily. But ultimately, this depends on broader market sentiment at the time, and no two years are the same. As we wind up 2021 and enter 2022, it seems volatility and high market interest can be expected.

The year has seen incredible activity in the financial markets, with crypto volatility continuing, interest in NFTs and digital assets exploding, and last year’s pandemic winners falling out of favor. Nevertheless, retail investors have discovered the magical wonder of investing and appear to be here for the foreseeable future.

What is the Santa Rally?

The Santa Rally is a stock market phenomenon that sees the market rally during the seven-day trading period between Christmas Eve and January 2. The author of the US Stock Trader’s Almanac coined the phrase “The Santa Claus Rally” in 1972, and it’s been referred to in varying ways ever since.

December is often one of the best months for the stock market, and several reasons circulate why this is.

It could be that general positive sentiment surrounding exuberant spending and cheer could lead people to feel optimistic about their investments. Other theories credit employee and banker bonuses being invested.

Meanwhile, institutional investors are usually positioning their portfolios for the year-end and selling off lost cause investments to offset against taxes in early December. These institutional investors tend to trade less later in the month, leaving retail investors to have more sway in the markets. As retail investors are driven with a higher sense of optimism, this is reflected in end-of-year bullish returns.  

There’s no doubt that people have more time to digest content and think about their investments during the holiday period.  This can lead to a surge of market activity and help stocks rally to the end of the year.

Insider sales

December is often an active month for insider stock selling as investors plan their taxes and sell stocks at a loss to offset against their gains. 2021 has seen this reach record levels as major players, including Elon Musk and Jeff Bezos, made massive insider sales contributing to a record $69bn stock sell-off between January and the end of November. That’s a 30% rise on 2020 and 79% more than the 10-year average.

In Musk’s case, it was to pay a looming tax bill in relation to exercising Tesla stock options.

January jump

January then often sees a jump in activity as investors get back to work and set the scene for the year ahead. Of course, it also depends on how volatile general market sentiment is, along with the wider macro arena.

The arrival of the Omicron COVID-19 variant casts a shadow over festivities this year and threatens to destroy festive cheer in its wake and inflation fears are also mounting.

It seems the division between bulls and bears has not been so stark since the rise of the dot com bubble in 1998. Many market commentators fear an almighty crash is in the works, while the bulls see nothing but blue skies ahead. In any case, retail investors are here to buy the dip, and their force en masse should not be underestimated.

The markets have seen a crazy 2021, complete with highly unusual market activity and signs of several asset bubbles. All of this points to the continuation of speculative interest through the turn of the year.

According to the January 2021 edition of the Stock Trader′s Almanac, it states

"First Trading day of the year, NASDAQ up 17 of the last 23. Second Trading Day of the Year, Dow up 21 of last 29 Santa Claus Rally Ends.

Furthermore, it states, “January’s First Five Days Act as an ‘Early Warning’.”

“The last 45 up First Five Days were followed by full-year gains 37 times for an 82.2% accuracy ratio and a 13.6% average gain in all 45 years.”

As of December 12, the S&P 500 had risen over 28% in 2021.

If you enjoyed reading this overview of what to expect in the financial markets these holidays, why not read our in-depth reports on ESG investing, Healthcare investing and the 12 key themes for 2022.


In this article:

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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