Magnificent Seven deliver early Santa Claus Rally

December 17, 2023

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Let’s face it. 2022 was a pretty miserable year for stock market investors. Driven by soaring inflation and surging interest rates, the major U.S. stock market indexes got off to a punishing start. By mid-October, the low point of the stock market decline, the benchmark S&P 500 index had lost 25% of its value. The tech-heavy NASDAQ fared even worse, falling by 34%, while the Dow Jones Industrial Average (DJIA) fell 21%.

But 2023 has seen a much-welcomed turnaround in the U.S. stock market. So far this year, the S&P 500 has gained 22.9%, the NASDAQ has risen 41% and the DJIA has gained 12.4%. On Thursday, all reached their respective 2023 highs.

Much of the rise in the stock market this year has been on the performance of what’s been dubbed by Wall Street as “The Magnificent Seven.” These seven standout stocks are Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla. Collectively, these seven stocks account for roughly 70% of the S&P 500’s near-23% gain this year. Remember, the S&P 500 index tracks the stock performance of the 500 largest companies in the U.S. If you were to remove these seven high-flying stocks from the S&P 500, the index would only be up around 6% this year. As of Thursday, Alphabet has gained 49.5% this year while Amazon (+75.5%), Apple (+52.5%), Meta (+176.9%), Microsoft (+52.6%), NVIDIA (+230.9%) and Tesla (+103.8%) have also delivered massive gains.

For investors, the ultimate goal is to breach the all-time highs that were set right before the 2022 stock market collapse. On Wednesday, the DJIA achieved that goal by closing at 37,090.24. This was 290.59 points higher than the previous all-time high of 36,799.65 set back on Jan. 4, 2022. On Thursday, the DJIA gained another 158.11 points.

For the S&P 500, it closed on Thursday at 4,719.15, just 77.41 points (1.6%) shy of its Jan. 3, 2022 all-time high of 4,796.56. The NASDAQ closed at 14,761.56, 8.1% shy of its all-time high of 16,057.44 set on Nov. 19, 2021. However, Invesco Capital Management’s exchange traded fund QQQ closed on Thursday less than one point away from its all-time high. Often referred to on Wall Street as the Q’s, Invesco’s QQQ fund is the second most popular exchange traded fund in the U.S. based on daily volume. Whereas the broader NASDAQ index tracks the stock performance of 3,439 companies, the Q’s only track the performance of the 100 largest companies within the NASDAQ. So far this year, the QQQ exchange trade fund has gained a hefty 51.5%.

The stellar performance in the stock market this year has delivered an early Santa Claus Rally for investors. The catchy holiday phrase was coined by noted stock market analyst Yale Hirsch back in 1972. Hirsch first mentioned the Santa Claus Rally in the 1972 edition of his Stock Trader’s Almanac, for which he created and authored.

Hirsch noted a trend that the stock market tended to rise in the last five trading days in December and the first two trading days in January. Over the past several decades, the Santa Claus Rally has provided some interesting results. Since 1969, this seven-day session has produced a gain 78% of the time – 42 gains vs 12 losses – in the benchmark S&P 500 stock index. Within these 54 trading sessions, the S&P 500 has produced an average gain of 1.3%.

The biggest loss was in 2000, when the Santa Claus Rally provided a lump of coal and the S&P 500 lost 4%. The biggest gain was in 2009, when Santa delivered a massive 7.4% seven-day gain. More recently, within the last 10 years, the Santa Claus Rally has reported eight gains and two losses. In 2022, the S&P 500 rose 30.58 points for a modest 0.8% gain.

After a brutal 2022, a Magnificent Seven-fueled recovery has been well-deserved. If Santa can deliver a further rally in the final days of the year, that’s just icing on the cake.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the U.S. Securities Exchange Commission.

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