In-depth Analysis

The markets’ love for St. Patrick’s Day

 

Big celebrations, plenty of sing-alongs, and rivers of beer. For many people celebrating St. Patrick’s Day is all about having a good time. But while most of us are having fun, markets are not sleeping.

Green on both sides

Traditionally the U.S. stock market ends higher on Friday. Even more interesting is that on St. Patrick’s Day, March 17th, Wall Street sees a significant uptick in positive returns, often amongst the strongest during the year.

Call it luck of the Irish, but the day that celebrates the color green is also historically a strong day for stocks.

Previous records going back 20 years suggest the S&P 500 has ended higher on March 17th significantly more often, with an average gain of 0.72%. That ranks as the eighth-best day of the year.

During the festive day, stocks of beverage companies perform slightly better and end in the green (pun intended).

The US stock market climbs on average by 0.34 percent two trading days prior to St. Patrick’s Day, which rises to 0.37 percent for the day before. There is a small average rise of 0.07% happening during the day. The day after St. Paddy sees an average rise of 0.19 percent. When markets reopen, there could be a small rise in stock prices, if history is to be accurate.

Triple Witching Week

Some traders believe that another factor that moves stock trading during St. Patrick’s Day is the triple witching week which crosses over with St. Patrick’s Day, and boosts the S&P 500. Triple Witching Day this year happens to be on Wednesday the 16th. During triple witching week, stock prices have historically risen far more often than they have fallen.

It is historically observed that the day before a major holiday tends to be good, partly for the same reason that Friday tends to be more bullish than other days of the week. That’s because short sellers — traders who have sold borrowed stock on bets that it will fall — often look to buy back some of that stock to cover their positions and protect themselves before a break. The longer a break, the more likely the tendency, so it’s especially true around the holidays. Seasoned traders are often feeling more relaxed prior to the prospect of vacation, and so they bid stocks up.

But during St. Patrick’s Day markets are open. What might be the reason for the strength the day before? Some traders speculate that it could be seasonal suggesting that mid-March is typically a good time for stocks, whereas late March tends to be tougher. It could also be the impact of the first quarter’s options expiration, which usually coincides with the week of St. Patrick’s Day.

The week leading to St. Patrick’s sees a slight increase in stock options and futures volatility which certain traders attest to the feel-good mood leading some markets to perform better.

 

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