Stock market and the ‘Santa Claus Rally’

Stock market and the ‘Santa Claus Rally’


Barbara Magor Deel is a certified financial planner and a chartered financial consultant with EFS Generation Income Planning in La Vernia.

Barbara Magor Deel is a certified financial planner and a chartered financial consultant with EFS Generation Income Planning in La Vernia.

According to Investopedia, the definition of a “Santa Claus Rally” refers to a “sustained increase in the stock market that occurs in the week leading up to December 25th.”

There are numerous theories as to why and how often this takes place.

One example is that institutional investors settle their portfolios by increased investing before leaving for the end-of-year holiday vacation. Another seasonal theory is that investors buy before the end of the year because they anticipate the rise in stock prices during the month of January, which is also known as the “January Effect.”

While these theories may work well for those investors trading short-term dips and spikes in the stock market, the bigger question for most Americans lies in the long-term profitability of their portfolio investments and how to allocate those monies for their individual goals and risk tolerance.

The stock market, as well as the economy this year, has been riddled with uncertainty. The questions have ranged from the reliability of the data on the economy itself along with the Federal Reserve’s reactions, to the path of corporate earnings and the market’s interpretation of corporate America’s projections. September saw the stock market’s worst performance since December, though remaining positive for the year. There are, however, certain principles that can help investors weather all these market and economic seasonal behaviors.

Resisting the lure of chasing “hot tips” and avoiding holding on to poorly performing investments can be handled during your portfolio review with your certified financial planner and trusted tax advisor. While there are no guarantees, and past performance is not a certain indicator of improved results, not panicking over short-term market movements and keeping focused on the big picture of your portfolio’s success will help avoid the stress of short-term volatility. It is more important to invest in an asset based on its future potential versus past performance.

Long-term investing is essential to your portfolio and retirement success. Short-term trading involves greater risk than the traditional buy-and-hold strategy. Trading with the purpose of harvesting tax losses or creating gains should be accomplished with the advice of your financial planner and tax advisor in a team effort on your behalf.

Tax implications are important, but they may be secondary to investing and securely growing your portfolio. Rebalancing your portfolio is the process of selling some of your assets that have performed well and buying more of the lower performing asset class. This is a contrarian action that is difficult for many investors, but if not performed during the lifetime of your portfolio, the asset classes in your overall portfolio may be overweighted at market highs and underweighted during market lows at exactly the wrong time. Timing may be everything, but should be critically monitored and reviewed with your professional advisors.

Investing with a time horizon, risk tolerance, and personal financial planning advice is the key to your portfolio’s success. Email me with questions at [email protected].


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