1 · One number76% vs. 58%
76% vs. 58%Probability of a rise over the Santa rally's 7 trading days vs. over any random 7 trading daysS&P 500, 76 year-ends in 1950–2025 · baseline is 19,114 windows of 7 consecutive trading days · price-index basis
The last 5 trading days of December and the first 2 trading days of the following January, these 7 trading days, are called the window. Yale Hirsch defined it in the 1973 edition of the Stock Trader's Almanac. For the S&P 500, this window ended positive in 58 of 76 cases from 1950 to 2025 (76%). The average was +1.25%.
This number alone looks impressive, but as we saw in Lesson 1, a probability of rising is never read in isolation. The probability of a rise when you pick any random 7 trading days over the same period, that is, the , was 58%, with an average of +0.25%. The Santa rally's 'strength' is not 76% but the difference from the baseline, about 18 percentage points, or about 1.0 percentage point in average return.
Quick checkWhat should you add to the statement "The Santa rally win rate is 76%" to make it accurate?
The period, the sample size and the baseline. Write it like "76% of 76 observations in 1950–2025, versus 58% for any random 7 trading days," and you can see that the pattern's real weight is about 18 percentage points.
2 · InsightDoes January speak for the whole year?
Three named patterns are packed into the turn of the year. They look similar, but each claims something different.
| Pattern | What it claims | First documented by |
|---|
| The average and win rate over the last 5 trading days of December and the first 2 of January were high | Yale Hirsch, 1973 edition of the Stock Trader's Almanac |
| In years when January rose, the average for the other 11 months was also high | Popularized by the Stock Trader's Almanac |
| Small-cap returns in January were higher than large-cap returns | First recorded by Sidney Wachtel in 1942 |
The Santa rally and the January effect describe the returns of that period itself, but the January barometer claims that January 'foretells' the following 11 months.
The most interesting one is the January barometer. From 1951 to 2025, the S&P 500's January was positive in 45 years and negative in 30. In the 45 years when January rose, the average for the other 11 months (end of January to end of December) was +12.07%, and 87% ended positive. In the 30 years when January fell, the average was +2.07%, with 60% rising. The average difference between the two groups is about 10 percentage points. The saying "January speaks for the whole year" has at least 75 years of numbers behind it.
Easy analogy · year-end cleaning and new-year grocery shopping
At year-end you tidy the house and throw out things you don't use, and in the new year you go shopping to refill the fridge. The stock market is similar. At year-end, investors sell losing stocks to cut taxes (), and funds tidy their portfolios for their year-end reports. In the new year, bonuses and pension contributions come in fresh. Because the times for throwing out and refilling are tied to the calendar, the explanation goes that patterns form around the turn of the year.
The candidate causes overlap in three: taxes (selling to realize losses), money flows (bonus and pension inflows), and settlement and reporting (funds' year-end tidying). Because the cause can be explained, the year-end patterns are usable candidates. But having a cause is no guarantee that the pattern still exists. That is checked separately with data.
Year-end patterns = taxes + new-year money + year-end settlementThe cause can be explained, but whether it remains is checked separately against the baseline and recent periods (the link to the cause is a hypothesis)
Quick checkThe saying "If January rises sharply, it will be a good year" corresponds to which of the three patterns, and how does it differ from the other two?
The January barometer. The Santa rally and the January effect describe the returns of that period itself, but the January barometer claims a 'forecast' that January tells you about the following 11 months. So we test it by splitting January from the other 11 months.
3 · DataRe-measuring 76 years by period
We measure the three patterns one by one, using the baseline and period splits. We always put the full period and the last 20 years side by side.
Santa rally: the gap versus the baseline has narrowed
In 1950–1989, the Santa rally had an 82.5% probability of rising over 40 observations and an average of +1.72%, a probability 25 percentage points higher than the baseline (57.0%). In 1990–2005 it was 68.8% over 16 observations and +0.92% (baseline 56.5%), and in 2006–2025 it was 70% over 20 observations and +0.55% (baseline 60.9%). The gap versus the baseline shrank from 25 percentage points to 9. The line in the chart below is the probability of a rise over the previous 10 years.
76 Santa rallies and the 10-year rolling probability of a rise · S&P 500
Up yearDown yearProbability of a rise over the previous 10 yearsBaseline 58%
Each bar is one year's Santa rally. Tap a bar to see that year's return and the probability of a rise over the 10 years up to then.
Calculated directly from Yahoo Finance ^GSPC daily closes (price index, excluding dividends and costs). Santa rally = last 5 trading days of December + first 2 trading days of the following January. Baseline = all possible windows of 7 consecutive trading days in 1950–2025 (19,114). Retrieved 2026-10-09.
January barometer: clear over the full period, smaller in the last 20 years
Split into a 2×2 table, of the 45 years from 1951 to 2025 when January rose, in 39 the other 11 months were also positive. But of the 30 years when January fell, in 18 the other 11 months were also positive. Narrowing the period to 2006–2025 (20 observations), the other 11 months averaged +10.91% in the 11 years when January rose and +8.98% in the 9 years when it fell, a difference of just over 2 percentage points.
January barometer 2×2 · S&P 500
Tap a cell to see the years that fall in it.
Calculated directly from Yahoo Finance ^GSPC month-end closes (price index). January = end of January vs. end of the previous December; the other 11 months = end of December vs. end of January. Retrieved 2026-10-09.
Small-cap January effect: close to zero at the index level
We calculated, year by year, the , the Russell 2000 small-cap index's January return minus the S&P 500's return in the same month. The 1988–2005 average over 18 observations was +0.09 percentage points (ahead in 7 of 18), and the 2006–2026 average over 21 observations was +0.02 percentage points (ahead in 9 of 21). The medians were −0.14 and −0.12 percentage points respectively, both negative.
Russell 2000 January excess return (vs. S&P 500)
Year small caps ledYear large caps ledPeriod average
Tap a bar to see that year's January returns for the two indexes.
Calculated directly from Yahoo Finance ^RUT and ^GSPC month-end closes (price index, excluding dividends). 39 Januaries, 1988–2026. Retrieved 2026-10-09.
Quick checkIn 2006–2025, the Santa rally was positive in 70% of 20 observations, and the baseline for the same period was 61%. How many percentage points is this pattern's strength?
About 9 percentage points. What gives the pattern its strength is the gap to the baseline, not the 70% figure. Compared with 25 percentage points in 1950–1989, it has shrunk to about a third.
4 · TwistThe more textbook the pattern, the sooner it weakened
The Santa rally was negative three years in a row at the end of 2023 (−0.88%), 2024 (−0.53%) and 2025 (−0.11%). The small-cap January effect was already close to zero from 1988 on (+0.09 percentage points → +0.02). The most famous patterns were the first to lose their strength.
Three negative years in a row is a striking record, but the sample is only 3. Widening to the 20 observations since 2006, 14 were positive. So 'it shrank to only slightly better than the baseline' fits the data better than 'it is over.'
Why do famous patterns weaken first? If investors who know the year-end average is high buy a little earlier, the gains get pulled forward to mid-December and the share left for the actual 7 trading days gets smaller. This is a hypothesis, but it points the same way as the 'weaker predictive power after publication' reported by McLean & Pontiff (2016). The more widely known a pattern is, enough to make it into textbooks like the small-cap January effect, the sooner it feels this pressure.
The January barometer faces the same question. Over the full 1951–2025 period, the gap between years when January rose and years when it fell clearly remains at about 10 percentage points, but looking only at the 20 observations since 2006, that gap shrinks to just over 2 percentage points. With 20 samples it is too early to conclude, but rather than taking 'January speaks for the whole year' at face value, it is safer to read it as 'the average was higher in years when January rose.'
Common misconceptions
"January fell, so I should reduce stocks this year?" Of the 30 years from 1951 to 2025 when January fell, in 18 the other 11 months were positive, and the average was +2.07%. It was just a lower expected return.
"The Santa rally missed three years in a row, so it's over now?" We don't judge from 3 samples. It is true, though, that the gap to the baseline has shrunk to 9 percentage points.
"Are small caps favored in January?" The Russell 2000's January excess return was close to zero in both periods since 1988, and the median was negative.
Quick checkIf you pick only the three years 2023–2025 and compute the Santa rally average, it is negative. How should you treat this result?
Treat it only as a 'reference' based on 3 samples. Don't use a sample smaller than 15 as the basis for a conclusion. Put it next to the 20 observations since 2006 and the 76 since 1950, and look at how the gap to the baseline has changed.
5 · One thing to practiceThis year's year-end 7 trading days and the January barometer
There are two practices in this lesson. Recalculate the Santa rally record yourself for any period you like, and prepare in advance a check card to use this year-end and January.
Practice 1 · Build a Santa rally scorecard
Year = the year that contains December
Average-
Median-
Probability of a rise-
Sample size-
| Year | 7-trading-day return | vs. baseline average |
|---|
Calculated directly from Yahoo Finance ^GSPC daily closes (price index). Baselines: 1950–1989 average +0.24%, 57.0% up; 1990–2005 +0.25%, 56.5%; 2006–2025 +0.27%, 60.9%; full period +0.25%, 58.0%. If the period differs from these, the full-period baseline is used.
Press the last-10-years button and you get an average of +0.48% and a 70% probability of a rise. Put next to +1.72% and 82.5% for 1950–1989, you can see how much the weight of the same pattern has changed.
Practice 2 · This year's year-end check card
Enter the closes and this year's Santa rally 7-trading-day return and January return are calculated and shown next to the record of the same group in the past.
Inputs and check states are saved only in this browser. Comparison numbers: Santa rally baseline, 2006–2025 average +0.27%, 60.9% up. January barometer 1951–2025: 45 years January rose → other 11 months +12.07% (87%), 30 years it fell → +2.07% (60%); 2006–2025: 11 up years +10.91%, 9 down years +8.98%.
The figures in this lesson are on a price-index basis, so dividends, trading costs and taxes are excluded. The Santa rally and the January barometer are observed only once a year, so even 76 years gives only 75–76 samples, and the last 20 years only 20. This is an educational example and does not recommend any particular trade.
Quick checkThis year's January was −3%. What should you write on the check card?
Write something like: "The other 11 months after a down January averaged +2.07% in 1951–2025 (60% positive over 30 observations), and +8.98% in the last 20 years (9 observations)." Also note that this is grounds for lowering expectations but not a sell signal, and that you need to check whether it overlaps with trend and earnings.
The one sentence left from Lesson 3The January barometer weakened and the small-cap effect died