Dear Fellow Trader: |
I hope your Sunday is going great… |
The Bills won… but my long reign as Fantasy champion dies today (four years out of five) unless the Goff-to-Jameson connection becomes a record-setting evening today… |
As I give up on that hope… I turn to the rest of the stock market year… |
Markets like to pretend they're timeless, frictionless machines. |
They aren't. |
Humans, institutions, tax calendars, risk committees, bonuses, and rebalancing rules govern markets… This isn't 1929… It's 2025. And plumbing matters more than ever. |
But every once in a while, those forces line up in ways that produce persistent statistical quirks. |
In finance, we call those anomalies. |
An anomaly is a return pattern that shouldn't exist in a perfectly efficient market… |
But these things keep showing up in the data anyway. |
It's not every year. |
It's not without exceptions. |
But this all happens enough that serious investors have to account for it. |
The last two weeks of the year and the first stretch of January are one of those windows. |
And the three charts in front of you show why. |
|
The Santa Rally as a Flow Anomaly |
The first chart is a seasonal composite of S&P 500 flows from December 1 through December 31, built using data going back to 1928. |
Look at the shape. |
 | Bloomberg and Zerohedge… |
|
Early December is noisy. |
Mid-month softens. |
Then, around the third week of December… see the "You Are Here" arrow… |
That's where the curve tilts upward with surprising consistency. |
This is what the literature calls a calendar effect, closely related to the Santa Claus Rally. |
Academic work going back decades documents that the final trading days of December and the opening days of January produce abnormally positive average returns relative to random windows. |
Crucially, this isn't explained by fundamentals or news. |
It's explained by the flows disappearing. |
Tax-loss selling has largely finished. Institutional books are mostly closed. |
Risk managers are no longer tightening. |
Volumes are dropping. And marginal sellers tend to go away. |
When selling pressure collapses, prices don't need optimism to rise. |
They drift higher simply because nothing is leaning against them. |
That's what this chart is really showing. |
Not cheer. Not hope. |
Just the absence of resistance. |
The Last 10 Trading Days Are Statistically Different |
The second chart isolates the final 10 trading days of the year and shows annual outcomes since 1952. The headline numbers matter… |
Since 1952, the S&P 500's median gain in the final 10 trading days is roughly +1%, with positive returns approximately 70% of the time. |
 | Bespoke |
|
That hit rate is far too high to dismiss as noise. |
In academic terms, this is a time-based return anomaly. If markets were fully efficient across all calendar periods, these bars should look randomly distributed. They don't. |
The dominant explanations are structural: year-end rebalancing flows, pension and institutional allocation resets, reduced liquidity amplifying directional moves, and cash redeployment once tax trades are done. |
Importantly, this chart also shows that negative years still exist. |
The red bars are real. Anomalies don't remove risk. They tilt probabilities. |
That distinction matters. |
Late December and Early January Stack the Odds |
The third chart ranks median two-week S&P 500 returns since 1950, sorted by calendar window. |
Late December and early January sit back-to-back as the 4th and 5th strongest two-week periods of the entire year. |
 | Goldman Sachs |
|
That's not a coincidence. |
This is where the Santa Rally transitions into what academics have historically labeled the January Effect. |
First documented in the mid-20th century, the January Effect describes outsized returns early in the year, particularly following December selling pressure. |
The mechanism is well-studied… |
December selling creates temporary price pressure; January brings fresh capital, bonuses, and new mandates; portfolio models reset exposure; small and mid-cap names often rebound hardest. |
Even though the pure January Effect has weakened over time, the turn-of-year window still shows persistent strength in broad indices. |
That's what this chart captures. |
Two adjacent periods where capital, psychology, and structure all reset in the same direction. |
Anomalies survive for one simple reason: they're hard to arbitrage away. |
You can't short Christmas. |
Seasonal effects fade, reappear, weaken, strengthen, and adapt. |
They never work 100% of the time. But when they persist across decades, datasets, and market regimes, they stop being folklore. |
They become context. |
And right now, the context is this: selling pressure has already done most of its work, liquidity is thin, positioning is lighter than narratives suggest, and capital is waiting for January. |
That doesn't guarantee upside. |
But historically, this is when the calendar stops fighting the tape. |
The good news… we're in the last two weeks of the year… and that sets us up for 2026. |
We have seven market days left this year… And it's time to make the most of them. |
Tomorrow, I'll be unveiling my Seven Lessons for 2026… |
I'll lay out a new strategy and idea each day… something you can take into the new year with lots of optimism. |
Plus, we'll lay out some of the best stories and trends for the new year. |
Seven days… seven resolutions to be a better trader and investor. |
It all starts tomorrow at Market Masters… |
Join me live tomorrow at 8:45 AM ET… |
See you there, |
Garrett Baldwin |
0 Response to "Garrett's Sunday Insight: The Chart Party Starts Here..."
Post a Comment