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The week between Dec 25 and Jan 1 often sees a predictable rally within the stock market. This rally has been dubbed the Santa Claus Rally.

There are several factors adding to this rally - the first of which is caused by institutional investors (managed funds and such) buying the top performing stocks (and dumping poor stocks) for the year so that these stocks will show up on the annual report that goes out to investors.

Secondly, it is people buying stocks in anticipation for the rise in stock prices in January. People often sell and buy stocks at the end of the year for taxes - gains and losses on January 2 aren't part of the taxes for that year while gains and losses on December 30 are. Thus, people are buying the winners in anticipation for more people to buy them in January (the January Effect).

Since 1968, the Dow Industrials have rallied an average of 9.15% from the lowest point in November or December to the highest point in December or January. This trend (from November to December) has been continuing since 1945. Looking at a narrower time slice, the rally is on the order of 1% - 2% in the week itself and does not always appear that week (sometimes the rally happens earlier or is less than a percent gain).

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