The "Santa Claus rally" period, spanning from December 24 to January 5, has historically yielded impressive returns for investors, with the S&P 500 (SP500) averaging a 1.6% gain since 1928.

This index has traded higher 77% of the time, with positive performance in 75 out of 97 years during this seven-day window. This is significantly better compared to a typical seven-day period, which has only averaged a 0.2% gain with a 57% positive hit rate, according to Ari H. Wald, head of technical analysis at Oppenheimer.

However, when the Santa Claus rally does not occur, the following one to two quarters tend to have below-average performance.

"Since 1928, the S&P 500 (SP500) has averaged a 1% loss in the three months after a negative Santa Claus rally, compared to an average 2.6% gain following a positive one," Wald noted, alluding to the old Wall Street adage: "If Santa should fail to call, bears may come to Broad & Wall."

Looking ahead to January, Oppenheimer analysts have identified promising signals based on the index’s position relative to its 200-day moving average. Since 1950, the S&P 500 (SP500) has averaged a 1.2% gain and traded higher 64% of the time when starting January above its smoothed trend, compared to a 0.7% gain and a 50% positive hit rate when it starts below this threshold. Presently, the index is above this crucial technical level.

Furthermore, January has been the worst-performing month for the momentum factor (SPMO), which measures the performance of market leaders versus laggards over the past 12 months. December’s outperformance often results from tax loss harvesting, where investors sell losing stocks to offset capital gains tax liability. This makes January the weakest month for momentum strategies as the prior year’s "losers" are often repurchased in what is known as the January Effect.

Momentum Factor (Long High + Short Low): Avg Returns