The Holidays were anything but happy for Wall Street denizens as the much-anticipated Santa Claus rally towards the end of the year failed to materialize.

Defined as a period of improved market performance between the last five trading days of the year and the first couple of trading days in the new one, the annual Santa Claus Rally was something that many market watchers and traders have looked forward to since the term was coined back in 1972. However, 50 years hence, the way selling pressures have stayed in place due to recession fears have put paid to a rally occurring at the end of 2022.

Historically, the S&P 500 has registered gains of around 1.3% towards the end of the year since 1960, essentially a 0.2% average return on practically all rolling seven-day returns. However, the end of 2022 showed Wall Street’s worst annual performance since the last global financial crisis hit back in 2008.

That said, the dismal performance of the US stock market at the end of the year spells the end of a three-year gains streak and a serious drop from 2021’s historic S&P 500 returns which amounted to 27%.

A Caveat from the Professionals

Financial experts point out that, whenever a Santa Claus Rally fails to occur, the markets – the S&P 500, in particular – tend to underperform in January and much of the coming year. 

This is mostly due to the actions of central banks across the globe; for 2022, it’s the way they have aggressively raised interest rates in order to bring rampaging inflation to a halt. This is particularly true in the case of the US Federal Reserve which increased interest rates by a record 4.25%, the highest it has been in over four decades; the Fed also warns that they may continue to hike rates well within this year.

As global central banks reported their final increases for 2022, a number of leading banking institutions reported that equity markets experienced historic outflow levels, nearly hitting the $42 billion mark as the year drew to a close.

Recent reports considered, 2023 may prove to be a grim year for equity investors as financial policymakers throughout the world say that, until some semblance of financial stability is achieves, they will continue their financial tightening measures in the coming months. That said, some of the biggest Wall Street players are now bracing themselves for what may be another difficult year.