>David Bogoslaw

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The week between Christmas and New Year tends to be a little wild on Wall Street. For one thing, trading volumes are thin, and some portfolio managers are looking to shuffle their holdings one last time before the year ends—and the combination may have an exaggerated impact on any stock movement, up or down. Also, many senior traders are on vacation, leaving more risk-averse junior employees in charge. This year isn’t likely to be much different, even if Washington did take away some of the motivation to game taxes when it settled the income tax and capital gains picture for 2011 and 2012.
Historically, the stock market has ended the year on an up note more often than not—the so-called Santa Claus rally. Since 1928, the Standard & Poor’s 500 index has had a positive return 74.7 percent of the time during the last week of the year, with an average gain of 0.74 percent, according to Bespoke Investment Group, a money management and financial research firm in New York’s Westchester County. And in years when the S&P 500 Index has risen more than 10 percent, an average gain of 1.1 percent has come in the last week of trading, Bespoke says. As of Dec. 22, the index was up 12.9 percent for 2010.
The last week of the year also tends to show more stock swings than usual. The Chicago Board Options Exchange Volatility Index, or VIX, has been higher in the last week than during the first week of December in 11 years out of 20. This December, the volatility index averaged 17.65 through Dec. 22. Over the past 20 years, the VIX has averaged 19.85 during the last week of the year.

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