The Flinchum File

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Here Comes Santa Claus?

In a predictable world, we know that the stock market usually weakens in the first half of December as the hedge funds sell out to “lock-in” their investment gains (read:  bonuses) for the year and enjoy the holidays.  Mutual funds do not have that option.

During the latter half of December, mutual funds needs to “window-dress” their balance sheets before the year-end statements are prepared.  This normally means they want investors to see they were fully-invested and holding very little cash on December 31st.  In addition, a great deal of qualified plan contributions are made just prior to year-end, which also have to be invested quickly.  Lastly, the omnipresent gloom on Wall Street lifts during this season of glad tidings, reducing the number of sellers.

The result is a monthly see-saw — the market drops the first half of the month but rallies the second half.  This is called the “Santa Claus” rally.  Last week, we saw the best week for the market in three months.

Oh, yeah . . . Santa Claus is coming Tuesday night!

So, enjoy the season of capital gains!!