Financial encyclopedia

At the end of every year, there is always a heated discussion on a phenomenon in the financial market-Santa Rally. Will Santa Claus give investors a red return? Or is it just a combination of market psychology and holiday atmosphere?

What is the Christmas market?

Christmas market refers to the phenomenon that the stock market tends to rise from the end of December to the beginning of January. In the past few decades, the US S&P 500 index recorded an annual rising probability of over 70% during this period. This short-lived optimism made investors full of expectations. However, there are many factors hidden behind this.

The reason behind it

The first is the fund manager's "window dressing" behavior. At the end of the year, fund managers tend to buy stocks that performed well during the year to beautify the year-end report and attract more investors' funds. Secondly, the festive atmosphere also played a role. Christmas holidays usually reduce market trading volume and volatility, and investors are generally optimistic, which helps the stock market to rise.

Historical data shows that the Christmas market does exist. For example, in the past 50 years, the stock market performance in December was better than the annual average in most years. However, there are exceptions. For example, during the financial crisis in 2008, the market did not welcome this "Christmas gift".

Comparison of performance in different markets

Christmas market shows different performances in different markets, among which US stocks are the most stable. Since 1950, the S&P 500 index has risen by more than 70% from Christmas to New Year, with an average increase of about 1.5%, especially in retail and technology stocks. The Christmas market of Hong Kong stocks is relatively unstable, and its performance is unpredictable due to the cash flow at the end of the year. In Europe, the FTSE 100 index in Britain has a rising probability of about 60%, with an average increase of about 1.2%, but its overall performance is slightly inferior to that of US stocks.

Should we chase the Christmas market?

Although the data is encouraging, investors should treat this phenomenon rationally. Christmas market is a short-term market behavior, which is not inevitable every year. Investors should pay attention to economic fundamentals and market news when chasing Christmas market. For example, recent weak economic data may drag down stock market performance. In addition, the low trading volume during holidays is easy to cause sudden fluctuations. Remember, rational analysis is more important than chasing "miracles".

Whether Santa Claus will bring rich returns again this year, we will wait and see!