Historically speaking, there's been a small lift to stock-market portfolios at the end of the year — a phenomena that many in the financial industry call "the Santa Claus rally."
Because Christmas lands within the last week of the year, Santa often gets credit for a small but measurable boost in the markets during that time, says Jason Lambert, the president and CEO of Northwest Financial & Tax Solutions near Portland, Oregon. "The Santa Claus rally is when the market tends to do well over the last two weeks of the year," he says.
"It's a real effect. It does happen — not 100% of the time, but around 60% of the time," Lambert says. Some years, investors get coal: Last year, for example, the S&P 500 dropped almost 20% by late December. But historically, Lambert says, the stock market tends to gain between 1% and 2% during the last 10 trading days of the year.
There isn't a single cause that explains the Santa Claus rally, but experts point to a number of factors that tend to leave investors with a feel-good buzz.
"In general, the seasonal economic indicators in November and December are very strong," says Scott Colbert, chief economist at Missouri-based Commerce Trust Bank. That helps drive up investor enthusiasm. Plus, institutional investors are making year-end trades, causing a flurry of activity in the market that can drive stock prices higher, he adds.
Lambert also credits some simple psychology — the holiday spirit, if you will. "There's not the same pessimism in the market," he says. "People have more money in their pockets, they feel a little more comfortable, and it props up the markets."
Video by Jason Armesto
While the Santa Claus rally can be a real, noticeable effect in the markets, experts say you shouldn't count on it to deliver a boost to your portfolio.
Colbert concurs, saying that anyone expecting Santa to give them the gift of a higher return at the end of the year could be disappointed. "I wouldn't count on it," Colbert says.
Regardless, Lambert says, most investors should simply stick to the financial plan they've put into place. That means continuing to save and invest regularly, without paying much attention to daily or seasonal drops or increases in their portfolio.
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