Brian Swint, The Barron’s Daily –

Gains in this period can be seen as more than a nice year-end bonus. It also sets up the market for the rest of the following year.

First observed in the 1970s by Yale Hirsch in his seminal Stock Trader’s Almanac, the Santa Claus rally is usually defined as what happens to the S&P 500 in the last five trading days of December and the first two of January. This year, that means the period from now until Friday, Jan. 3.

Just look at the data, which are compelling. Since 1950, the market has risen approximately 80% of the time in the seven-day window. And even though the S&P has already gained more than 25% this year, there’s no reason to think it can’t edge up a little higher now.

There are plenty of theories for why this happens. Maybe it’s just good cheer. Maybe it has to do with thin volumes and the fact that institutional investors are taking time off, leaving the trading to retail investors who are more likely to buy than sell. It’s impossible to rule out that there might be a little holiday magic involved, too.

Another possibility is the stock market, when left alone, tends to go up. There are very few scheduled events over the next few weeks–weekly jobless figures on both Thursdays and Case-Shiller house prices on New Year’s Eve are the highlights. The Santa rally could just be a reminder of why the stock market isn’t like a casino–when you invest, you’re more likely to win than to lose.

There are, of course, still risks. Surprises always have the potential to steal Christmas gains, and an unguarded post from President-elect Donald Trump, or signs of retail gloom in the shopping malls would be all it takes. But as the market settles down for a “long winter’s nap,” investors should have visions of sugar plums dancing in their heads, at least until everyone returns to their desks.