Year-end effects on the stock market

The stock markets are gradually getting into the Christmas spirit. So it's time to take a closer look at a number of typical year-end effects. Behind the festive lights and the obligatory "best wishes" emails, a number of annually recurring patterns are playing out on the markets. These year-end effects sometimes cause prices to make strange jumps without any fundamental news to back them up. For the attentive investor, these are no mystery, but mechanisms that reappear every year. And sometimes they can be exploited to your advantage...

Let's break down the most important ones.

Tax loss harvesting: selling with a heavy heart

A classic in countries where realized capital gains are taxed: tax loss harvesting. Investors sell positions that are at a loss so that those losses can be offset against previously realized gains for tax purposes. The result? Stocks that were already struggling take an extra hit at the end of the year.

Until now, Belgian investors have mainly observed this with little envy. But from next year, we too will be able to join in the game. This means that, from next year, year-end effects on Belgian small caps are likely to become more visible than we are historically accustomed to.

The result is predictable: underperformers from the previous year are sold, often regardless of their prospects. And what is sold sometimes falls further than can be rationally justified.

Portfolio cleanup: window dressing with a dust cloth

Professional fund managers are people too. And people don't like embarrassing photos. Just ask Mr. Trump and Mrs. Clinton.

At the end of the year, professional investors take a snapshot of their portfolios. That is why some of them have the bad habit of trying to clean up that snapshot towards the end of the year: positions that have performed poorly over the past year are sold off so that they do not appear in the annual report. This so-called window dressing reinforces the same effect as tax loss harvesting. Losers are sold, not because they have suddenly become worse, but because no one wants to "show" them anymore. The share is thus punished a second time, purely for aesthetic reasons.

It gives attentive investors—and fund managers who don't care about aesthetics—the opportunity to fish out that ugly duckling before it transforms into a beautiful swan.

Low volumes, quiet markets, and noisy lists

Between Christmas and New Year, the stock market often runs at half speed. Many professional investors are on vacation, trading volumes decline, and order books become thin. In such an environment, a single relatively large order can be enough to cause a price to fluctuate by several percent—often without any fundamental news to justify it.

It is precisely in this context that the annual favorites lists appear . Banks, analysts, and self-proclaimed stock market gurus present their "top picks for 2026." For large, liquid stocks, the impact is usually limited, but for small and micro caps, such a mention can suddenly create strong buying (or selling) pressure. A few extra orders in a market with low liquidity are enough to cause the price to move significantly, regardless of the underlying business reality.

For active investors, it sometimes offers unexpected opportunities that can be exploited.

A sting in the tail

On top of that, there is another less pleasant end-of-year phenomenon: some unscrupulous individuals choose to send out a press release just before Christmas or New Year's Eve, announcing a carefully saved-up dose of bad news. In other words, strategically timing bad news in the hope that it will be buried under turkey and champagne and not picked up by the press and the public.

Large companies have usually learned not to do this—trust comes on foot and leaves on horseback—but smaller listed companies still do it from time to time. If you keep an eye on the investor relations pages during Christmas and New Year's Eve, you can sometimes pick up valuable (and timely) information. You may have to put up with an angry look from your spouse or mother-in-law at the dinner table, though...

Finally

Year-end effects are not magical stock market laws, but the result of human behavior, tax rules, and practical reality. They cause noise—sometimes annoying, sometimes interesting. For the long-term investor, they are mainly a reminder that price and value do not always go hand in hand, especially not in December.

And who knows: while others are preparing their portfolios for winter, there might just be an opportunity waiting under the Christmas tree 🎄📈.

Author: Jens Verbrugge