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Year-End Rally and the January Effect

 
Year-End Rally, January Effect
 
  •  Hadar.Goldberg
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    Hadar.Goldberg  Hadar.Goldberg
     
      
     
     
     

    Hadar 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.

 

Year-End Rally

 

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 "January effect"

 

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.

 
 
 
 

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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.

 

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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.

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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.