Oppenheimer: The "Santa Claus rally" in the US stock market has arrived, and the "January effect" is expected!

The "Santa Claus rally" from December 24th to January 5th has historically brought investors handsome returns, with the S&P 500 index averaging a 1.6% increase during this period since 1928. Over the past 97 years, the index has a high probability of increasing by 77% (75 years) during these seven days. Ari H. Wald, Head of Technical Analysis at Oppenheimer, pointed out that this performance starkly contrasts with any typical seven-day cycle, which averages only a 0.2% increase with a 57% probability of rising. Furthermore, when the "Santa Claus rally" fails to materialize, the following one to two quarters' performance tends to be below average. Wald stated, "Since 1928, the S&P 500 index has averaged a 1% decrease over the following three months after experiencing a decline during the Christmas rally, while it has averaged a 2.6% increase over the following three months after experiencing an increase during the Christmas rally." He also cited an old Wall Street saying: "If Santa Claus fails to come, the bear market may be around the corner." Looking ahead to January, Oppenheimer analysts have identified some encouraging signals based on the index's position relative to its 200-day moving average. Since 1950, when the S&P 500 index opens above its smooth trend line in January, it has averaged a 1.2% increase with a 64% probability of rising; when it opens below this trend line, it has averaged a 0.7% increase with a 50% probability of rising. Currently, the index is above this critical technical level. Furthermore, the January momentum factor (SPMO) has historically been the worst-performing month of the year, tracking the performance of market leaders and laggards over the past 12 months. The outstanding performance in December typically reflects tax-loss harvesting strategies, where investors sell losing stocks to offset capital gains tax, making January the poorest-performing month for momentum strategies as "poor-performing stocks from the previous year are subsequently bought back," known as the "January effect." A popular theory suggests that the US stock market tends to rise more in January than in other months. This phenomenon, known as the "January effect," shows that the January increase is several times higher than the average for other months. This impact was most noticeable in small-cap stocks from the 1940s to the mid-1970s. However, around the 2000s, this increase seemed to shrink, becoming less reliable since then. The "January effect" has been widely accepted for decades, with most studies focusing on trying to find subtle differences and reasons without reaching any definitive conclusions. However, other theories exist. The main theory suggests that many individual investors engage in tax-loss harvesting in December, selling losing positions to offset gains and reduce tax liabilities. This theory suggests that after January 1st, investors stop selling and replenish their stock portfolios, leading to a stock market increase. Another theory is behavioral finance: people make financial decisions at the start of the new year and adjust their investments accordingly, pushing up the stock market. Many high-income investors heavily rely on year-end bonuses, providing them with ample cash to invest at the beginning of the new year.