Like most businesses, stock exchanges have special hours around the holidays. These holidays are published well in advance, and generally follow a specific set of rules.
So with Christmas and New Year's Day right around the corner, what is the schedule for the stock market?
Markets Closed:
Friday, Dec. 25, 2020 for Christmas
Friday, Jan. 1, 2021 for New Years Day
Closing Early:
Thursday, Dec. 24, 2020 at 1 p.m. ET
The stock market closes for Christmas every year even when Dec. 25 falls on a weekend. This year, Dec. 25 is on Friday, so the holiday will be observed on that day.
Markets will open at the usual 9:30 a.m. ET for Christmas Eve but will close at 1 p.m. on Dec. 24. The shortened session right before arguably the biggest holiday of the year usually results in very low volume.
In addition to Christmas, markets will be closed on Friday, January 1, 2021 to celebrate the new year. This will result in markets being closed for three consecutive days in back-to-back weeks. The longer weekends could lead to higher volatility as markets close the day before the holidays. *Spoiler* Investors should enjoy the 2021 New Years Day market close since markets will not close in 2022 to celebrate the holiday due to it falling on a Saturday.
Santa Claus Rally
Outside of just unusual trading hours, investors should keep an eye out for this year’s Santa Claus Rally. This phenomenon results in markets typically rising in the six trading sessions following Christmas. Thus, this year the rally is set to last from December 28 to January 4. The rally has occurred 17 of the past 26 years as the S&P 500 has averaged a 1.3% increase during these six days over the last 70 years.
This year holds more bearish signals for the Santa Claus rally due to a strong November which saw the S&P 500 increase more than 10%. Typically, when gains are more than 5% in November the rally is missed due to investors cashing out early.
2020 has been a very… special year, leading to much more uncertainty around markets currently and where they will be after Christmas. COVID-19 vaccinations have begun leading to growing confidence in the longer term outlook of the economy. However, coronavirus cases are still extremely high with more than 200,000 testing positive daily in the United States alone. Continuing unemployment claims increased for the first time since August just last week and a grim November jobs report doesn't help matters. This along with investors questioning why markets are higher than they were before coronavirus may result in markets being on the naughty list as it pertains to the rally.
January Effect
After the unusual trading hours brought by Christmas and New Years, portfolio managers will be hoping that the January Effect takes place even in a coronavirus market. The January Effect is the tendency of stocks to rise more in the first month of the year than in any of the next 11. This typically follows a December slump that is brought to an end by the Santa Claus rally. So far this year there has been no December slump even after November's strong trading. The S&P 500 is up 0.9% since the market opened on December 1.
The usual explanation for a January Effect is that investors rebalance their portfolios at the beginning of the year as they take cash from year-end tax-loss selling and put it back into stocks. Uncertainty going forward remains high due to coronavirus and the effect it is having on holiday travel along with everything else. A strong November without a December slump may lead to extra caution but the uncertainty could just as easily lead to more the rally we've been experiencing for several months.
