Stocks Rally for Santa Claus at Christmas
- By FXT
- December 21, 2023
- FXT Analysis
Why do stocks rally at Christmas? There’s a bunch of reasons that compound into a momentous powerup for the stock market, particularly US stocks most years.
People always find a way. If they have cash, they will likely buy gifts for their loved ones. If they don’t, they will probably find a way to buy gifts by taking extra shifts, working a little more or doing a side hustle, to treat those they care about. Trusting in the good nature and drive of people is always a good bet. Plus, there’s always jobs going somewhere around Christmas time, particularly if you want some extra work outside of the 9 – 5 hours.
Here are a range of finance based concepts that are also likely to power up the stock markets around Christmas time:
Recently, the Fed announced very positive news which had not been seen all year, until the Christmas Rally play is looming. Added positivity in financial news is a massive springboard to markets at this time of year.
Holiday Cheer and Optimism
As the holiday season approaches, there tends to be a festive atmosphere and a sense of optimism. This positive sentiment can spill over into the financial markets, leading to increased buying activity.
Many investors engage in year-end portfolio adjustments and rebalancing. Institutional investors, in particular, may seek to improve their year-end performance, leading to increased buying activity.
Investors may engage in tax planning towards the end of the year, such as selling losing positions for tax purposes. This activity can result in capital being redeployed into the market, contributing to a year-end rally.
Low Trading Volumes
During the holiday season, trading volumes often decrease as many market participants take time off. Lower trading volumes can sometimes lead to exaggerated price movements, and if there is positive sentiment, it can result in a more pronounced rally.
Fund managers may engage in “window dressing” toward the end of the year, where they buy top-performing stocks to make their portfolios look better on paper. This can contribute to upward price pressure on those stocks.
The media has a great shift on the population, along with social expectations. People’s drive to please others at this time of year is profound and the positivity is a huge help to the stock market.
There are many reasons the Christmas rally is a common term in the finance space. Traders, will you be a part of the movement each year?