Santa Claus Rally

We actually attended a Santa Claus Rally last December. The energy in the arena was off the charts. Who knew elves could be that loud, running around naked, burning things?

Okay, so in Financeland, a Santa Claus Rally is… something else. It refers to a rally - or rise - in stock prices during the month of December. And they don’t even need magical reindeer to, uh, achieve lift-off.

Why December? Because, according to our desk calendar, December is the last month of the year and, for a whole bunch of tax and accounting reasons, there are trades that need to happen before the end of the calendar year.

Professional funds need to have a certain minimum amount invested in the stock market rather than holding cash. All investors want to sell their losers either for the tax loss. Or just because they don’t want it on their annual report that they owned a million shares of dogcrap.com.

So, because everything is better with a cutesy name attached, this onslaught of activity has been termed the “Santa Claus Rally.” And generally, there is more buying than selling as optimism generally beats pessimism this time of year, so historically, stocks have gone up around Christmas.

So, what about the January Effect?

Well, because all the buying has bought up the quote loose unquote shares in the marketplace, or rather, the nervous nellies who kind of sort of wanted to sell their shares have now sold them, there simply isn’t the supply of shares at lower prices available for buyers to buy, and so prices go up.

That is...there’s typically an increase in stock prices after the New Year, which financial gurus have lovingly named “The January Effect.” Or, as Mrs. Claus calls it, “Santa’s Recovery Period.”