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Index IDEA: Santa Claus rally for US small caps?

Recent history suggests a different story...

US small cap stocks are riding a strong 2017 as we near the Christmas holiday, with a 14.2% return for US small cap Russell 2000® Index year-to-date as of December 15. However, US small cap watchers expecting a "Santa Claus Rally"—a strong return between Christmas and New Year—for this asset class can consider historical figures from FTSE Russell.

This week FTSE Russell shared Russell 2000 Index returns going back 20 years for the year-to-date leading into Christmas Eve and the period between Christmas Day and New Year’s Day. Interestingly, index returns show that nine of the last 20 years saw US small cap investors get coal in their stockings between Christmas and New Year, including the last three years, as indicated by negative returns of the Russell 2000 Index. And, in six of these cases, the negative Santa Claus rally reversed the direction of a positive year-to-date return for the Index.

And on the bright side, in four of the 20 years examined by FTSE Russell, the US market received a Christmas present in the form of a positive return for the Russell 2000 Index in the week between Christmas and New Year after a negative return for the Index in the year-to-date leading into Christmas.


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