The topic is based on the Santa Claus effect which often occurs yearly in the month of December. The Santa Claus has both positive and negative effects. The major positive effect of Santa Claus is the market profitability. Some negative effects associated with it include: consumers are overpriced, and managers find it hard in injecting more cash to buy additional stock to the business (Fisher 12). The main aim of this paper is to address the impacts of Santa Claus rally on financial management.
Effects of Santa Claus on financial management
Santa Claus effect generally means that, markets have a habit of changing their atmosphere or becomes profitable in the month of December. Santa Claus effect is also referred to as Santa clause rally. At this period, a lot of companies collect a lot of money from their highly charged goods as a result of people spending their salaries and bonuses on Christmas season and almost everyone is in a happy mood as a large number of people at this time don’t go to work.
The Santa Claus effect is always measured as to how many people buy goods in huge stocks despite the fact that their prices are highly priced. A great number of people do this because they expect prices to continue to rise in the month of January (Investopedia ULC 1). This normally occurs when managers raise the prices of the market stocks in December and early January. Extra funds are added to the market as it continues to enlarge in this period, which is later endorsed for accounts and taxation calculations before the completion of the year. Business organizations display their products attractively in order to attract more customers.
During this period, managers try their best to do anything they can to make the economy move on and on as they add additional cash to the market to fuel the economy. The market agreement is that, the managers should not give up or fear a lot about the market shortcomings or the following year deficit but the vital thing is to get rid of the extending depression of the economy. During the Christmas time, this is the best time to invest and there is always availability of loans (Rockefeller 38).
Most of the companies practice Santa Clause by preparing various gifts in their business workplaces, packaging them attractively and even distributing others to their customers. Some companies associate themselves in programs that operate Santa Claus by giving them the fiscal support. For example, in the US a large number of poor families have benefited from Santa Clause associated companies by generous distribution of various gifts.
Various companies also exercise social corporate responsibilities to customers as a Santa Claus action through lending them some loans for either buying some equipment or restocking their small selling stores. In every trading company, its main objective is to make profit. Most of the companies try to recover their losses at the period between Christmas time and early January (Young 18). When a trading company makes a loss, it reduces the business liability of taxing. In this period, managers who have the responsibility of recovering the losses that business has made do substitute most of the stocks that are not perming well with those that are doing well in the market. They always do this before they submit both the yearly and the quarterly report.
Most of the companies that are favored by the Santa Claus are those that have made tax losses, have currently submitted good profitable reports, or are having good basics. Christmas time nowadays is being viewed as the main measure of the business sensibility and a measure of what the following year will be like. For example, in the year 2009 the stock rate rose between the last week of the month of December and the first selling two days of year 2010 in America (Hulbert 2). This fully portrayed how the year 2010 would be and that is the way it was really like.
Before determining the effect of Santa rally of a certain year, one must first determine the probable seasonality of the market which includes studying the history data to obtain the designs which have been reiterating themselves at certain points of the calendar year. Seasonality means that, it is a character of time change that keeps recurring itself within a period of one year.
Santa Claus effects are seasonal as they occur only once at Christmas time, between the last week of December and a few days of the following year. Seasonality helps businesses to invest at the right time, get the right or additional staff and make business decisions where all these are expected to correspond with the season that is anticipated. It is also vital to always consider the seasonal effects when evaluating the business stocks from a central view point.
Santa Claus effect brings about speculation in the market by overpricing the stocks and consumers still purchases them as a way of investing. The Santa Claus effect always arises because of the following concepts (Russolillo 6):
- Several customers tend to believe that the Santa Claus effect occurs due to yearly respects of tax.
- Various individuals believe that this effect occur because Cynics are always on leave during this holiday season.
- Others believe that a large number of people are buying the stock due to the expectation of the January outcome. January outcome is a yearly occurrence where stockholders begin to worry about the taxes. Stockholders that may have performed very well could sell the stocks that were downcast. This allows investors to write off the losses that they could have made. When many investors do this at the same time, it causes the market stock to lower in end of the year, but this situation is definitely corrected in January when investors’ purchases back the business stocks that they had vended (Russolillo 7). The effect of January always affects small limits more as compared to the large limits though this has not been happening in a number of years as the market nowadays is familiar with these effects. In additional, various business people are expending the tax protected departure strategies as this eliminates every aim of vending for the purpose of generating the tax losses.
- There are several who also believe that the Santa Clause effect is occurring due to Christmas magic of infecting happiness to determined residents as a holiday miracle.
- Others believe that this effect will make the level of the market stocks to lower as a lot of senior customers are always on leave.
- Various people think that when business managers replace the less performing stocks with the best performing ones, they will induce an effect.
For the Santa Clause to develop very well, the investor is always down and must be performing badly in the market. At this moment, the market is always underinvested which gives the investors a good chance if the market goes high in December. The manager will be required to purchase the stocks faster; otherwise he/she will face the worst when the accounting books will be closed at the end of the year.
The Santa Claus effect has a very short time for trading and in real sense everything is not guaranteed. It encourages materialism as related to children (Young 20). Children pretend to behave well to their parents so that they can receive many presents during this season and this leads to materialism. Materialism is experienced when parents purchase too many unnecessary presents to their children.
Santa Clause effect occurs in December holiday between the last week of the month and a few days of the following year. Business managers overcharge their stocks because there is routinely a high demand of various products during this festival season. Business people write off their tax losses by the huge profit they get from these sales. The traders at this season also get a chance of selling the stocks that did not perform well as well as replacing underperforming stocks with stocks that are performing well. During this period, investors have the best opportunity to invest, to get the best staff and even to make the best decisions of their company strategies.