“As goes January, so goes the year.” For investors that subscribe to the notion of calendar effects, Christmas and new year represent key moments in the investing calendar for taking advantage of some alleged market inefficiencies. Stock market surges triggered by the annual Santa Rally and the subsequent January Effect – together with the supposition that January is a useful barometer of market performance through the rest of the year – have long been debated forms of behavioural investing. But do the facts back up the claims?Playing the Santa Rally…
The Santa Rally phenomenon tends to attract most attention in the US, although these days the press on this side of the pond increasingly favour it as some kind of vital year-end benchmark. The theory was originally proposed by Yale Hirsch of Stock Trader’s Almanac (the annual US investment tome), who suggested that stocks generally rise in the final five trading days of the trading year plus the first two days of the new year. While there is no definitive reason why this happens, the supposition is that investors are re-jigging their portfolios, re-positioning themselves for tax reasons and looking to take advantage of the January Effect…
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