Brian Jacobsen

The Twelve Days of Christmas: Santa Claus rally, or stumble?

AdvantageVoice® Blog—12-27-12
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

Eager investors look forward to the annual “Santa Claus Rally,” but this year, Congress and the President seem intent on delivering lumps of coal to investors. There is indeed something special about the Twelve Days of Christmas. The first day of Christmas starts—unsurprisingly—on December 25. The twelfth day is January 5. Going back to 1950, the average return on the S&P 500 over those twelve days is 1.79%. The average 12-day return on the S&P 500 outside the Twelve Days of Christmas is 0.37%.

Perhaps it’s the eggnog or holiday cheer that makes investors a bit more enthusiastic during the Twelve Days. Maybe what drives this pattern is that the Twelve Days straddle the New Year, when some investors do tax loss selling while others make New Year’s resolutions to invest more the next year. Or maybe it’s just a statistical quirk. Regardless of the cause, or if it’s just a coincidence, the fiscal cliff debate seems to be dragging down the markets this holiday season.

Congress and the President still have time between now and the end of the year to get a deal done. The prospect of the payroll tax cut expiring, unemployment insurance benefits being reduced, approximately 30 million more Americans being subject to the Alternative Minimum Tax, doctors’ reimbursements for treating Medicare patients being cut by 27%, and various other adverse shocks should be enough to push politicians to do something. Because of politicians’ strong re-election instincts, I think they’ll successfully patch over some of the fiscal cliff and come back in the new session of congress to deal with some of the other issues. If they don’t, they’ll just spend the next few years playing the “blame game” in the hopes of getting an electoral advantage in the 2014 mid-term election. It seems a lot like the pattern that played out at the end of 2010, when the 2001-2003 tax cuts were first set to expire. That time, though, they had a deal done after Thanksgiving. This time, it’s the same pattern, but played out over a different time-scale.

While politicians have been avoiding directly dealing with the fiscal cliff, they have also been avoiding other important pieces of legislation. For example, without congressional and presidential action, thanks to a law passed in 1949, the Department of Agriculture will be required to purchase milk at about $8 per gallon when we go into the new year. That will likely drive up the price of milk at grocery stores for every American. Yet, in early December, Congress found the time to pass legislation banning the use of the word “lunatic” in all federal legislation. Perhaps that’s just a poetic reflection of the lunacy of politics.

The views expressed are as of 12-27-12 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.


Not FDIC Insured • No Bank Guarantee • May Lose Value

©2015 Wells Fargo Funds Management, LLC. All rights reserved. Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company.

Prospectus | Terms of use | Privacy | Proxy policies & voting records | Security policy | Contact us | Help | Full site