Market pros often talk about a “Santa Claus Rally” in traditional industries. But is this a pattern likely to lift cannabis stocks heading into new year?
Market pros often talk about a “Santa Claus Rally” – a stock market surge that occurs between Thanksgiving and the holiday season/end of the year.
And data suggest the Santa Claus effect on the markets is real.
December is the best-performing month in the overall stock market since 1950, and the average December gain since 1987 tracks at 1.53%. That’s more than 2.5 times the average monthly return. Similar trends are seen in Canada and even many countries that don’t even celebrate Christmas, like Japan.
Jeffrey Hirsh at the Stock Trader’s Almanac explains that during these times individual investors often pull back from the market, leaving the pros to go bargain-hunting. Other experts offer up explanations that include investors buying in anticipation of the “January Effect” (another time of the year with noteworthy historical run-ups), Wall Street bonuses being put to work, companies avoiding announcements of negative news during the holidays, and even just investors buying in due to general holiday cheer.
There is some debate whether new and emerging industry investors get swept up in this.
With cannabis stocks, last year’s Santa Claus Rally was the best gift under the tree. Industry stocks had their best one-month surge ever.
The average cannabis stock gained more than 50%, and giants like Canopy Growth Corp. and Aurora Cannabis up over 60%. And some smaller cannabis companies based in the U.S. posted doubles or triples during the period at their peaks. One Colorado-based company saw its stock surge by 364.1% for a brief time.
There’s no guarantee this will repeat, of course – there never are guarantees in the stock market.
But cannabis stocks in December 2016 did post a similarly impressive period of gains, though there were fewer companies, and their market caps were much smaller. The numbers show last year was not a one-off.
Now, this doesn’t happen every year for every industry — but when the rally hits, it can power stocks to some huge wins.
And after recent declines, cannabis stocks are a screaming bargain right now. It’s just a matter of time until they come roaring back and set new highs to match the massive growth of the industry.
With the combination of great valuations and possible institutional moves in the sector like the ones that happened after the Santa Claus rally last year and pushed stocks to record highs, now may be the best time to establish or add to a cannabis portfolio.
It could be the last time you have a chance to do so while the stocks are at such favorable prices.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors