We’ve all been taught to ride the rally, Santa Claus Rally. However, are we in for Ho Ho Ho or just a Ho HO Humbug?!
Christmas Rallies are caused by 2 things, Hedge Fund Managers that are up big from the year and are looking to snag an aggressive ‘gains’ for their bonuses, and those that are aiming to ride the wave with some extra cash they’ve not needed on other expenses. However, this year no one is getting those bonuses as market returns have been trash on a dumpster fire, so a lot of high net-worth individuals are using this year to harvest losses for tax purposes. Therefore they’ll not be pursuing extra gains at the end of the year end, and of course, for this years performance, few hedge fund managers will be getting 2022 bonuses in this economic environment.
This means the Santa Claus Rally into year-end is unlikely, since there is limited-to-no motivation for buying up this weak market at an institutional level, and this will discourage the smaller players to ride and weak or low volume moves.
January is a seasonal time to cut runners, book profits, rebalance the books, and get portfolios tightened up for the year ahead.
But, if portfolios are already slim from 2022’s non-performance, and cash-heavy, January could be set up for a completely different seasonal move.
Now, of course, we can not ignore the overall Macro environment, but it’s important not to analyze seasonal patterns in a vacuum, but to really consider why a seasonal pattern has developed, and why it might still be true.
You still have to be nimble in such rough markets, but sometimes seasonality can help you trim the fat and focus on the worst poor performers for shorts and the best seasonal performers for longs.