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Take Advantage of the Christmas Stock Market

The stock market is open Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time. In 2020, the NYSE and the Standard will close early at 1 p.m. Eastern time Thursday, Dec. 24, and be closed Friday, Dec. 25. The stock market at Christmas can be affected by having the extra days off for the Thanksgiving and Christmas holidays. The markets tend to see increased trading activity and higher returns the day before a holiday or a long weekend. This is known as the holiday or weekend effect.

Key Takeaways

  • December is typically the best month of the year for trading and the stock market.
  • The Santa Claus Rally is proven to be an excellent time for short-term investors to plan a strategy of investing to reap relatively high profits.
  • The Christmas Stock Market is not as beneficial for long-term investors as for short-term investors.
  • Analyzing stocks and learning which stocks do well during the Christmas stock market can increase the probability of high profits.

Stock Market in December

Image via Flickr by ancasta 1901

December is often the best month of the entire year for the stock market. The S&P Index is generally up 1.6% on average. This month also has the highest frequency of advances. December also tends to be the least volatile month but could see some bumps. History has proven that December can be an excellent time to buy stocks. However, seasonal stock trends don’t apply all the time and should only be one factor in an investor’s trading strategy.

The Santa Claus Rally

The Santa Claus Rally is a sustained increase in the stock market over the holiday season. There are several reasons for this sustained increase, including overall hope for the upcoming year, anticipated tax refunds, and year-end bonuses. Another theory is that some of the larger investors seem to be more worldly and go on vacation at this time, allowing the market to be bullish.

According to ‘The Stock Trader’s Almanac,’ the Santa Claus Rally is a seasonal phenomenon. ‘The Stock Trader’s Almanac’ has been a long-time provider of analysis of seasonal market trends. The Almanac states that since 1969, positive returns occurred in 34 of the past 45 holiday seasons. This rally includes the last five trading days in December and the first two trading days in January. Each year, the stock market at Christmas shows an average collective return over these days of 1.4% and positive returns each day.

Some reasons for this rally could be that there is an anticipation of a rise in stock prices during January, also known as the January effect. Some research supports the fact that value stocks outperform growth stocks in December. Many investors in actively managed mutual funds will also tend to invest in value stocks during the Christmas season.

Christmas Stock Market Pros and Cons

The Christmas stock market rally can make this time of the year very profitable, especially for experienced investors. Investors will use stop orders or stop-loss orders to minimize risk. These strategies provide investors with the potential for a more significant profit in short-term trades. Inexperienced investors need to know that the Christmas stock market can be very volatile, increasing the risk of losing money. Investors who specifically prefer long-term investments are not likely to see any changes to their portfolio caused by the Christmas stock market trends.

The Santa Claus Rally can affect the national market. The surge of the S&P can produce long-lasting effects that last the rest of the year. Historically, the results can be considerable. Besides generating great benefits, the Santa Claus Rally can be an excellent predictor for the year ahead, bringing positive effects.

The short-term increases during the Christmas stock market can be a great opportunity for investors. Short-term investors can take advantage of this seasonal effect to generate relatively significant profits. However, there’s still risk while investing during this time.

The January market can be incredibly volatile as the trade activity increases substantially after the Christmas stock market. Prices can rise and fall without a predictable pattern. The short-term effects of the Christmas stock market have, for the most part, been positive in past years.

Taking Advantage of the Christmas Stock Market

Learning about Christmas’s effect on the stock market and studying history to create a strategy can decrease the risk for an investor while creating an opportunity to turn a nice profit. Understanding a trader’s mindset can lead to success. An investor thoroughly analyzes stocks, develops a strategy, and is aware it’s possible to lose some money. A routine of devoting attention to trading will lead to success since there’s minimal leniency.

If an investor takes their eyes off the market momentarily, this could mean a missed chance of making a profit. Patience and discipline are crucial for successful trading during the Christmas stock market.

An investor capable of doing their research and analysis, creating their trading strategy, leads to success. As an investor staying true to their trading plan is crucial. It’s imperative to develop a predetermined plan that includes knowing what stocks you’re considering, how much risk you’re willing to take, and what you hope to make in profit. Other key components are knowing what resources are relevant and how to react in case of unexpected circumstances. These will all help you invest wisely during the Christmas stock market. It’s also excellent planning for trading at all times of the year.

Tips and Tools

Stock indicators are an excellent tool to help an investor analyze stocks and determine which ones will be part of the broader strategy. Indicators are designed primarily for analyzing short-term price movements. They may not be as useful for long-term investors, but for those looking to make quick profits during the December stock market rally, they’re worth considering.

Observing stock chart patterns can help investors understand the behavior of stock over the last year. It will also show how the annual Christmas stock market rally affected the market. This can help to determine what stocks generally perform well during the holidays. Stock screener software is another tool used by many of the best world traders, as is charting software that can help investors find the right stocks for their plan.

Stocks That Perform Well During Christmas Stock Market

Trends of the season offer many possible rewards. Many of the best-performing stocks during the Christmas season are those companies behind the latest fads. From the best-selling toys to the new electronics, investing in the related stocks can often be great for the short-term investor’s strategy during the Christmas stock market.

Everyone has heard the day after Thanksgiving called Black Friday. This is a day that many retailers come out of financial loss (red) to make a profit (black). Retailers can see as much as 40% of their total annual sales made during the holiday season. Investors looking to take advantage of this trend may buy shares in apparel or jewelry, hoping that the positive attitude will continue through the Christmas season.

Transportation stocks stand to benefit from the momentum of the Christmas stock market. With online sales growing faster than sales at traditional retail locations, the transportation industry will have their busiest days during the holiday season. There will be an expected bump associated with this trend with transportation stocks during the holidays. Transportation stocks are a great option for those looking for quick, short-term profits.

The stock market is inclined to repeat seasonal trends, which affect both individual stocks and the stock market. Understanding how these trends work can give investors an advantage and result in larger profits. As history often repeats itself, it can predict the Christmas stock market or Santa Claus Rally. This has been a market in which short-term investors can make a great profit.

There are many factors to consider before investing in the stock market during the holiday season. Past trends at Christmastime indicate a higher probability of profits but are not guaranteed. Besides the effect of Christmastime on the stock market, the stock market can also be affected by the world and national events. But in most years, we can expect an upswing in the sales of stocks during the Christmas stock market.