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In the December 1, 1998 issue of the "Todd Market Forecast" (http://www.toddmarketforecast.com) Steve Todd had an interesting article about the favorable year-end seasonality commonly called "The Santa Claus Rally". He has kindly given us permission to reprint it here.

SEASONALITY QUANTIFIED
Way back in 1986, we ran into a study by William Lefevre which seemed to put numbers on the legendary Santa Claus and January rallies. We were so impressed that we like to update it every year at this time.

Mr. Lefevre analyzed market data from the end of World War II and found that the Dow Industrials had rallied an average of 9.15% from the low made in November or December to the high in December or January. Following are the numbers since 1968.

 
         Low Dow Close       High Dow Close
Year     Date     DJIA        Date     DJIA      % Gain
-------  ------   ----        ------   ----      ------
1968-69  Dec 31    944        Jan  3    952       0.86%
1969-70  Dec 17    770        Jan  5    811       5.37%
1970-71  Nov 18    754        Jan 29    869      15.15%
1971-72  Nov 23    798        Jan 18    917      14.97%
1972-73  Nov  1    969        Jan 11   1052       8.59%
1973-74  Dec  5    788        Jan  3    881      11.72%
1974-75  Dec  6    578        Jan 29    706      22.22%
1975-76  Dec  5    819        Jan 30    975      19.11%
1976-77  Nov 10    924        Dec 31   1005       8.72%
1977-78  Nov  2    801        Dec 30    831       3.79%
1978-79  Nov 14    785        Jan 26    860       9.49%
1979-80  Nov  7    797        Jan 30    882      10.70%
1980-81  Dec 11    908        Jan  8   1005      10.59%
1981-82  Nov 18    844        Dec  4    863       2.20%
1982-83  Dec 16    990        Jan 10   1092      10.31%
1983-84  Nov  7   1215        Jan  6   1287       5.91%
1984-85  Dec  7   1163        Jan 29   1293      11.13%
1985-86  Nov  4   1390        Jan 31   1571      13.05%
1986-87  Nov 18   1863        Jan 28   2163      16.15%
1987-88  Dec  4   1766        Jan  7   2052      16.18%
1988-89  Nov 16   2039        Jan 31   2342      14.90%
1989-90  Nov  3   2630        Jan  2   2810       6.87%
1990-91  Nov  7   2441        Jan 31   2736      12.11%
1991-92  Nov 29   2895        Jan 28   3272      13.04%
1992-93  Nov 17   3193        Dec 28   3333       4.38%
1993-94  Nov  4   3625        Jan 31   3978       9.75%
1994-95  Nov 23   3675        Jan 16   3932       7.01%
1995-96  Nov  1   4767        Jan 31   5395      13.19%
1996-97  Nov  1   6021        Jan 22   6801      12.95%
1997-98  Nov 12   7401        Dec  5   8149      10.11%
1998-99  Nov 12   8706        Jan  8   9643      10.70%
1999-00  Nov  2  10581        Jan 14  10722      13.30%
2000-01  Dec 20  10319        Jan  3  10946       6.08%
 
Average Gain                                     10.62%
 

The phenomenon has a perfect record since 1945 although the major bear market year of 1968 was a near miss, gaining only 0.86%

The study ended in 1986, but we have continued it since then and a glance at subsequent gains on the above table suggests that an updated study would show a considerably greater average gain than 9.15%.

This year the bottom came in, at least so far, at 8706 on November 2. If the Dow is higher than that on December 1, the technical requirements have been met, but that is unlikely. In 41 of the past 50 years, the top came in January and seven of the nine December peaks occurred during the last three days of the year.

My thanks to Steve for letting me pass this information along.