Find new investment opportunities based on Market Sentiment Indicator. Manage watchlist risk with leading indicator of volatility See what influential analysts and investors are saying about stocks in your watchlist
Find new investment opportunities based on Market Sentiment Indicator. Manage watchlist risk with leading indicator of volatility See what influential analysts and investors are saying about stocks in your watchlist
Hadar.Goldberg
Hadar.GoldbergHadar Goldberg is a talented financial journalist with a strong passion for analyzing the stock market. She has a deep understanding of financial markets and is skilled at conducting research and analysis to uncover valuable insights for her readers. Hadar is known for her ability to explain complex financial concepts in a clear and concise manner.
When the Year-End Rally ends, a similar phenomenon known as the "January effect" begins. Price increases characterize the January effect as well. So, for these two effects, is it worthwhile to take savings and invest them in the stock market? Do they really exist, or are they just urban legends? And, if so, what is the explanation? Let us begin by stating that this is a self-fulfilling prophecy. This happens most of the time, but not always - there are years when the stock market was terrible in December, and years when January had no positive effect at all.
The Rally phenomenon at the end of the year is commonly explained as a self-fulfilling prophecy. Because everyone knows that the stock market rises in November and December, investors pour demand into the market to avoid being left behind and missing out on the gains. When other investors see that the market is gaining momentum, they add demand to the market, creating a self-sustaining cycle.
The main reason that can explain the rally at the end of the year is the desire of investment funds to upgrade their performance so that at the end of the year they will meet the goals set for them and look good in the performance ratings published at the end of the year. In order to renovate the returns, the investment managers usually inject demand for the shares they own, thereby causing an increase in market prices.
Furthermore, private investors buy shares in anticipation of the January effect for another reason.
The main reason for this is that at the end of a calendar year, private investors sell shares on which a capital loss can be recorded in order to offset tax authorities. When you sell a share in December, the price drops, and when you buy it again in January, the price rises. This explanation is consistent with the fact that the effect is stronger in small stocks because small investors have a stronger tendency to invest in small stocks and are motivated by capital gains tax considerations.
Another explanation is that investment managers who sold off losing stocks at the end of the year buy them again at the start of the year, when their performance is still not magnified. That is, they sold in December so that they would not appear in their investment portfolios, primarily to avoid criticism, and they bought again in January because they apparently believe in these companies.
The final explanation for the effect focuses on the bonuses that companies' employees receive at the end of the year and at the beginning of January, bonuses that, in part, flow to the market in the form of demand for shares, increasing their share price.
Many statistical tests and studies show that they exist in various degrees of strength. It remains to be seen whether and to what extent these phenomena will be predicted this year. But keep in mind that there is no guarantee here; December and January can also be bad months in the stock market, as has happened several times in the past.
So, do you think it will happen this year? Leave your thoughts in the comments section below.
Join StocksRunner.com for daily market updates, expert analyses, and actionable insights.
Signup now for FREE and stay ahead of the market curve!
Find out what 10,000+ subscribers already know.
Real-time insights for informed decisions.
Limited slots available, SignUp Now!
Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.
Get all the pieces of the puzzle on important data activity before the major news sources break the story and find out what happening right now and what could happen in the future
FIND US ON
Discover the wisdom that over 10,000+ subscribers love! Join us for unique insights and keep ahead in the stock world. Just drop your email to get daily updates!
Real-time stock market updates
Expert stock analysis
Investment strategies
Top stock recommendations
Trading signals and opportunities
Disclaimer: Past performance, whether explicitly stated or inferred from historical testing of methodologies, does not serve as an assurance of future outcomes or achievements.
The displayed outcomes pertain to a strategy not historically accessible to investors and do not epitomize the returns achieved by any specific investor. The Readiness Indicators, Sentiment Indicators, and aggregate score derive from a model retrospectively applied to historical data. This model is founded on assumptions intrinsic to its construct, which may remain unverifiable and expose stakeholders to potential losses. Engaging in active trading may not be advisable for individuals possessing limited financial resources, restricted investment or trading acumen, or a conservative risk profile.
Please be advised that your invested capital is subject to inherent risks.
Kindly be informed that StocksRunner and its affiliated entities ("TS") neither extend nor endorse any proposition, invitation, or recommendation concerning the acquisition or divestiture of securities, derivatives, prospective products, or any form of investment guidance or strategy.
The information presented herein serves exclusively for illustrative purposes. It is imperative not to predicate investment decisions solely on the content of this platform. Prior to making any financial commitments, it is prudent to evaluate its relevance to your specific circumstances and consult with professionals specializing in financial, tax, and legal domains.
Find out what happening right now and get all the pieces of the puzzle on important data activity before the major news sources break the story and see what are the trends
FIND US ON
Unlock the knowledge that 10,000+ subscribers already cherish. Join for exclusive insights and stay ahead in the stock game! Enter your email to receive daily alerts
In-depth stock analysis
Informed investment decisions
Stock market insights
Stock trading tips
Disclaimer:
The Score performance whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. The results reflect performance of a strategy not historically offered to investors and does not represent returns that any investor actually attained.
The results reflect performance of a strategy not historically offered to investors and does not represent returns that any investor actually attained. The Readiness Indicators, Sentiment Indicators and total score are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. Active trading is generally not appropriate for someone of limited resources, limited invesment or trading experience, or low-risk tolerance. Your capital may be at risk.
Please note that no offer or solicitation to buy or sell securities, securities derivatives of future products of any kind, or any type of trading or invesment advise, recommendation or strategy, is made, given or endorsed by StocksRunner including any of their affiliates ("TS").
This information is provided for illustrative purposes only. You should not rely on any advice and/or information contained in this website and before making any investment decision. we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.
Comments
Please Login to add comment