As people go into the holiday season, their buying patterns tend to shift. This can end up greatly affecting the stock market. According to the experts, these are a few of the trends that people can expect to see as the holiday season progresses.
Increased Trading Rates at the End of the Year
At the end of each quarter, portfolio managers often start to rebalance their clients’ portfolios. This leads to an increased volume of trading that often leads to an increase in overall stock prices. The effect is especially pronounced for the final quarter. New Year’s Eve is often one of the busiest days of the year for the market, with prices frequently rising.
Uptick in Stock Prices the Day Before Holidays
In a phenomenon known as the pre-holiday effect, people’s returns tend to average about nine to 14 times higher on the day right before a stock market holiday. The days leading up to a holiday tend to have a slight dip, while the day immediately before the holiday has a sharp increase in pricing. This can be due to overall improved optimism, less uncertainty, and general decreases in people’s liquidity. Being aware of this trend can help smart traders make wise decisions.
Lower Trading Volume Overall
Historically speaking, trading volume for the stock market drops off during the holiday season. People are busy dealing with other concerns, and because they are spending so much on holiday presents, they tend to have less cash to trade with. However, though there are fewer people trading overall, the people who do trade tend to trade a little more than usual around the holidays. If an investor knows what they are doing, this can be a great time to work on making a bit of extra income.
Favorable Performance in January
As the holiday season winds to a close, the stock market starts to behave very favorably. People are feeling relaxed and happy following their break, which tends to result in more positive performances on the stock market. Since January is the beginning of a new quarter, investors tend to get more funds for purchasing stocks and more flexibility for their investing strategies.