Holiday cheer likely to linger

NEW YORK – What comes after the “Santa Claus” rally? Some market watchers are already talking about the “January Effect,” a seasonally strong period for equities, especially volatile issues like small-cap and technology stocks.

The market’s good cheer usually lingers through the first part of January, as money managers reposition their portfolios for the year ahead. Investors typically return from the holidays with renewed conviction, buying back stakes in securities sold in December for tax purposes and putting new money to work following year-end payouts of dividends and bonuses.

“In January … there’s money flowing in. That’s when people are getting back into the marketplace,” said Jeff Mortimer, portfolio manager for Charles Schwab Investment Management, the brokerage’s mutual fund group. “I think everyone does some housecleaning at year end, and that has a positive effect on the market.”

Analysts say the January Effect has been happening earlier and earlier in recent years, as institutional investors anticipate the market’s seasonal strength; indeed, small caps have shown pronounced strength in recent weeks. Limited tax-loss selling after two positive years for stocks might mute the phenomenon this year, but most Wall Street professionals are predicting a robust January.