Stock market traditional seasonal rise?

Laurence_WMF

A friend of mine, whom I have not thought to be a financial expert, has said that he's noticed that the stock market tends to rise after Christmas and then fall again around the beginning of February.

Is this the case?

Many thanks,
Laurence

dtsazza

Almost certainly not - at least not in a systematic (i.e. reliable) way.

Simply because if it did reliably rise after Christmas, your friend would not be the only one to notice this. As a result, people would be more likely to buy just before Christmas, which would push the price up beforehand and reduce the rise. Likewise, if stock were very likely to fall at the start of February, everyone would start selling out of them near the end of January... and then a bit before that to beat the fall in prices... and so on. In fact no-one would buy at "full price" in January at all knowing that they'll be cheaper in February.


The short version is, that prices of shares are roughly speaking at a point where people think they're just as likely to go up or go down. If they're definitely going to be cheaper tomorrow, they'll already be cheaper today for that reason.

lvader

Santas rally is a real phenominom, but it's normally May rather then Feburary when the big drops normally start to happen. It doesn't happen every year without fail, but on average it seems to work.

Freecall

Lots of market folklore out there but as dtsazza says, if we all know it then it has no real meaning. In the unlikely event that you really do discover a genuine way of predicting market movements in advance then the best bet is to keep it to yourself to preserve its value.

Here are a few others I can think of, I am sure there are many more :

• Buy a bear when you can’t find a bull

• The new high list will do better in the subsequent six months than the new low list

• Sell in May then go away

• In a bull market, be bullish

• Sell your losers and let your runners run

Etc, etc

lvader

The FTSE has risen in December for 20 out of the last 22 years. Not bad for an unpredictable coincidence.

IronWolf

There are some phenomenon like this, for example at the end of the tax year you will see a lot more selling as people realise gains and losses in order to best avoid taxes

But seasonal patterns arent 100% reliable, if they were everyone would be getting rich from them

Ifts

One of the shares tipped by Questor was mentioning seasonal patterns re housebuilders:

Buy housebuilders’ shares and hold them until near the end of March to take advantage of the sector’s record of outperforming the wider market in the first quarter, the Sunday Telegraph’s Questor column advised. Housebuilders beat the rest of the market in the first three months in 16 of the last 20 years. The shares will be supported by a series of trading statements, starting with Persimmon on January 8th, and support from the Government’s Help to Buy scheme. During sharp corrections, this trade helps shelter capital, too.

http://www.digitallook.com/news/21396955/Sunday_share_tips_housebuilders_Topps_Tiles_NewRiver_Retail.html?&username=&ac=

Freecall

lvader wrote: »

The FTSE has risen in December for 20 out of the last 22 years. Not bad for an unpredictable coincidence.

Not necessarily.

A statistician would look at the probability of the market not rising in the period of 20 of the last 22 years. You may well find that it is not as unlikely as you think.

A bit like the 'amazing' coincidence that you share a birth-date with someone else in a crowded pub - much more likely than you might think at first.

Glen_Clark

dtsazza wrote: »

Almost certainly not - at least not in a systematic (i.e. reliable) way.

Simply because if it did reliably rise after Christmas, your friend would not be the only one to notice this. As a result, people would be more likely to buy just before Christmas, which would push the price up beforehand and reduce the rise. Likewise, if stock were very likely to fall at the start of February, everyone would start selling out of them near the end of January... and then a bit before that to beat the fall in prices... and so on. In fact no-one would buy at "full price" in January at all knowing that they'll be cheaper in February.


The short version is, that prices of shares are roughly speaking at a point where people think they're just as likely to go up or go down. If they're definitely going to be cheaper tomorrow, they'll already be cheaper today for that reason.

That is logical. But the market isn't always logical. December has been the best month of the year for stock markets http://www.telegraph.co.uk/finance/markets/questor/10554373/How-did-Questors-Santa-Claus-Rally-shares-fare.html

Old_Slaphead

Nothing to do with conspiratorial bankers & fund managers trying to talk up share prices to improve their short term performance/bonus then ?

Freecall

Old_Slaphead wrote: »

Nothing to do with conspiratorial bankers & fund managers trying to talk up share prices to improve their short term performance/bonus then ?

No, those decent chaps would never do that.

Would they?