Santa Claus left stock-market investors with a proverbial lump of coal for a third straight year but once again delivered Christmas cheer to the cattle market.
An April live cattle futures contract purchased on Monday, Dec. 8, and exited on Jan. 2 produced a gain of 9.275 cents a pound, for a profit of $3,710 per contract. That marks the 18th straight year that such a trade initiated on Dec. 7 (or the next trading day if that date falls on a weekend) and closed 17 trading days later has produced a profit, noted Dave Whitcomb, head of research at Peak Trading Research, who has called the phenomenon the strongest commodity trend on the planet (see chart below).
Earlier: A Santa rally for the cattle market? It’s the strongest trend in commodities.
That’s a stronger recent record than the more famous “Santa Claus rally” popularized by the late Yale Hirsch, founder of the Stock Trader’s Almanac, in 1972, to describe the tendency of the S&P 500 to rally in the final five trading days of a calendar year and the first two trading days of the new year.
The S&P 500 ended the period Monday down 0.1%. If extended to other indexes, it wasn’t a total wash, with the Dow Jones Industrial Average booking a 1.1% rise, while the Nasdaq Composite lost 0.7%.
Hirsch viewed the phenomenon as an indicator rather than a tradable strategy. If Santa delivers, that tends to spell good news for stocks in the new year, while a negative stock-market return over that seven-day trading period indicates the opposite. He summed it up in a memorable and oft-quoted phrase: “If Santa Claus should fail to call, the bears may come to Broad and Wall,” a reference to the New York Stock Exchange situated at the intersection of Broad Street and Wall Street in Manhattan’s financial district.
That said, a snub from Santa doesn’t guarantee doom in the year ahead. Stocks booked solid annual gains in 2023 and 2024 without St. Nick’s blessing.
Whitcomb notes that cattle futures are closely correlated with the S&P 500, so the stock market’s ability to again defy the gloom associated with a missed Santa rally could be important. While the S&P 500 missed out on the Santa rally period that ended Monday, it finished Tuesday at an all-time high along with the Dow.
Other seasonal factors that account for the cattle market’s strength over the 17-day trading period include holiday demand for beef, including top quality cuts, as well as tighter supplies due to weather and other factors.