If you make your living by investing in the stock market, there is no need to fret about the last week performance of the bourses. The trend of the last week in any year has rarely showed any correlation with stock market performance for the next year.
False and truth
Supersitions, however, abound to the contrary. There is even a saying that reinforces this unfounded fable. The saying states that if Santa does not influence the markets during the last week of the year, the bears will visit the financial world during the succeeding days. This saying is applicable only to the week after the Christmas break of the stock market. In the real world, however, this is minimal support for this conjecture. The opposite actualy is true. It has been found that the stock market exhibits better results if the market dips in the period between Christmas celebrations and the start of the new year.
The last assertion is backed with solid evidence. The DJIA or Dow Jones Industrial Average can be examined as proof. It came into existence in 1896. Since everything is under record, it is little work to find the correlation between the direction of the market over seven trading days post Christmas and its direction in the subsequent 12 months. The study revealed that this stock market on its average over last 120 years has actually performed better over the full year, half year, quarter and month post Decembers when Wall Street did not receive the bountiful gifts or profits bought by Santa Claus in the last week of the year.
This kind of inverse correlation was the norm in 2015. There was a drop of almost four percent over seven trading sessions by Dow after Christmas was celebrated in 2015. This makes it one of the most terrible periods of Santa Claus Rally in the history of the stock market. In 2016, the Dow gained almost 18 percent. Do understand that these figures are not for statistical purposes and do not fulfill the 95 percent confidence level needed by statisticians to find out whether there a pattern is actually true or not. There is such no need to wish for a market in decline during the last week of 2016. Most important of all, there is no requirement to worry about the market direction. Think about it like any other week in the calendar.