This Is What Happens To Your Investments When You Go On Vacation

What happens to the stock market during the holidays?

Things start to change early. There is a common phenomenon known as the “holiday effect” or “pre-holiday effect” that indicates a slight spike in stock prices the day before a holiday.

There is some guesswork as to why this might happen.

Some experts attribute this to trading volume: With more investors on vacation, the moves made by the few that stay can create more noticeable market fluctuations. Another reason could be general investor sentiment. Some investors become more risk averse before the holidays and use the time just before the holidays to sell riskier stocks as a way to avoid unexpected bad news that could occur while they are away.

“Many factors affect stock market performance over the winter holidays, including tight liquidity, the pre-holiday effect, and year-end and year-end rebalancing activity by institutional investors,” says Charles Qi, chartered financial analyst and CEO of StockPick. , an investor-focused video-sharing app launching this month. “If recent experience is any guide, markets can be very volatile in December. For example, the S&P 500 Index declined 9.2% in December 2018, one of the biggest monthly declines in recent years, while it gained 4.4% in December 2021, one of the best monthly results of 2021. ”.

Company performance can also have a big impact on stock performance during the holiday months. Despite a higher inflation rate, a staggering number of consumers will still be hitting stores this holiday season, and early sales figures may make investors bullish on certain stocks as a result. According to the latest forecast from the National Retail Federation (NRF), holiday sales are expected to increase by 6-8% over 2021 sales during the holiday period from November 1 to December 31. And online and out-of-store sales are expected to increase by 10-12%.

Investor Do’s and Don’ts

If the holiday season makes you reevaluate your current holdings, experts say you could try the following:

1. Don’t try to time the market. Trying to anticipate how your stock will perform while you’re away for the holidays could result in bigger losses. “Making investment decisions based on the effects of seasonality is risky, as market performance varies significantly in different years,” Qi says. “Combined with less than usual market liquidity, it can be very risky to ‘time the market’ during the winter holiday period. Avoid making impulsive changes to your portfolio that don’t align with your long-term investment goals.
2. Focus on building long-term wealth. There is always some level of risk involved when you have your money tied up in the market, but overcoming short-term discomfort could translate into significant gains down the road. “The best course of action is to stick to long-term allocations and ride out any market volatility over the period,” Qi says.

Food to go

Don’t let potential short-term losses dampen your holiday spirit or lead you to make irrational moves to try to mitigate the inherent risk of investing. If you’re going to make a change to your portfolio, make sure it’s part of your regular rebalancing and aligns with your long-term strategy, rather than a knee-jerk reaction to market fluctuations that may or may not occur. .