Santa Came To Town And 5 More Charts To Watch

Posted by lplresearch

brown bear in red and brown coat figurine

Wednesday, January 5, 2022

Here is one chart about Santa and five more charts (or tables) that caught our attention recently.

Well, stocks did what they were supposed to do, which was gain during the historically bullish Santa Claus Rally (last 5 days of the year and first 2 days of the following year). We discussed this seasonally bullish period here, but the bottom line is we expected these days to be strong. It is when Santa doesn’t come to town that makes us worry. In fact, three of the past four times he didn’t come (2000, 2008, and 2015) saw stocks fall for the full year and the last five times he didn’t show all saw January lower. Only 2016 avoided a drop for the full year when Santa didn’t show, but that year started off with one of the worst first six weeks ever, so Santa was still a warning sign.

Mark this off as one less thing to worry about in 2022.

View enlarged chart.

Just because stocks were up big last year by itself isn’t a reason to worry. “The truth is big yearly gains likely take place in larger bull markets, so don’t get a fear of heights just because of what happened in 2021,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In fact, the past seven times the S&P 500 gained more than 25% saw the next year higher, with five of those years up double digits.”

As shown in the LPL Chart of the day, the S&P 500 is up nearly 12% on average and higher 86% of the time after it is up 25% the year before. There are lots of worries out there, but ‘stocks being up a lot and that is why I’m bearish’ shouldn’t be one of them.

View enlarged chart.

The first day of 2022 started off with a rare all-time high on Day 1. We were surprised, as this has only happened five other times in history. Let’s be clear, we would never suggest investing based on one day, but years that make a new high on the first day actually see a strong January and strong full year return. Not to mention nearly 40 all-time highs on average along the way.

View enlarged chart.

Taking this a step further, stocks not only made new highs, but it was a strong Day 1 as well. Below you will see that previous times the first day of the year gained more than 0.6% saw stronger than average January and full year returns. Again, don’t blindly invest on only this one signal, but it is quite interesting.

View enlarged chart.

The fourth quarter of 2021 went out like a champ, gaining more than 10% in the process. Turns out, 10% gains likely mean continued strength. Incredibly, the S&P 500 was higher two quarters later the past 12 times the S&P 500 gained more than 10% in a quarter. Again, this is just one study, but it does little to change the view that the bull market is likely alive and well in 2022.

View enlarged chart.

Another eye-opening stat is the S&P 500 is up 7 consecutive quarters, one of the longest quarterly win streaks ever. Turns out that future strength is more common than you might think. Two quarters later the S&P 500 has never been lower and a year later up a very solid 14.1% on average. In fact, you have to go back to the early 1950s for the last time a quarterly win streak ended at 7, as they usually manage to go further than most think.

View enlarged chart.

Lastly, Ryan and Jeff Buchbinder discussed many of these concepts in the latest LPL Market Signals podcast, which you can watch below or directly from our YouTube channel.


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