Dear Fellow Trader:
I hope your Sunday is going great…
The Bills won… but my long reign as Fantasy champion dies today (four years out of five) unless the Goff-to-Jameson connection becomes a record-setting evening today…
As I give up on that hope… I turn to the rest of the stock market year…
Markets like to pretend they're timeless, frictionless machines.
They aren't.
Humans, institutions, tax calendars, risk committees, bonuses, and rebalancing rules govern markets… This isn’t 1929… It’s 2025. And plumbing matters more than ever.
But every once in a while, those forces line up in ways that produce persistent statistical quirks.
In finance, we call those anomalies.
An anomaly is a return pattern that shouldn't exist in a perfectly efficient market…
But these things keep showing up in the data anyway.
It’s not every year.
It’s not without exceptions.
But this all happens enough that serious investors have to account for it.
The last two weeks of the year and the first stretch of January are one of those windows.
And the three charts in front of you show why.
The Santa Rally as a Flow Anomaly
The first chart is a seasonal composite of S&P 500 flows from December 1 through December 31, built using data going back to 1928.
Look at the shape.
Bloomberg and Zerohedge…
Early December is noisy.
Mid-month softens.
Then, around the third week of December… see the "You Are Here" arrow…
That’s where the curve tilts upward with surprising consistency.
This is what the literature calls a calendar effect, closely related to the Santa Claus Rally.
Academic work going back decades documents that the final trading days of December and the opening days of January produce abnormally positive average returns relative to random windows.
Crucially, this isn't explained by fundamentals or news.
It's explained by the flows disappearing.
Tax-loss selling has largely finished. Institutional books are mostly closed.
Risk managers are no longer tightening.
Volumes are dropping. And marginal sellers tend to go away.
When selling pressure collapses, prices don't need optimism to rise.
They drift higher simply because nothing is leaning against them.
That's what this chart is really showing.
Not cheer. Not hope.
Just the absence of resistance.
The Last 10 Trading Days Are Statistically Different
The second chart isolates the final 10 trading days of the year and shows annual outcomes since 1952. The headline numbers matter…
Since 1952, the S&P 500's median gain in the final 10 trading days is roughly +1%, with positive returns approximately 70% of the time.
Bespoke
That hit rate is far too high to dismiss as noise.
In academic terms, this is a time-based return anomaly. If markets were fully efficient across all calendar periods, these bars should look randomly distributed. They don't.
The dominant explanations are structural: year-end rebalancing flows, pension and institutional allocation resets, reduced liquidity amplifying directional moves, and cash redeployment once tax trades are done.
Importantly, this chart also shows that negative years still exist.
The red bars are real. Anomalies don't remove risk. They tilt probabilities.
That distinction matters.
Late December and Early January Stack the Odds
The third chart ranks median two-week S&P 500 returns since 1950, sorted by calendar window.
Late December and early January sit back-to-back as the 4th and 5th strongest two-week periods of the entire year.
Goldman Sachs
That's not a coincidence.
This is where the Santa Rally transitions into what academics have historically labeled the January Effect.
First documented in the mid-20th century, the January Effect describes outsized returns early in the year, particularly following December selling pressure.
The mechanism is well-studied…
December selling creates temporary price pressure; January brings fresh capital, bonuses, and new mandates; portfolio models reset exposure; small and mid-cap names often rebound hardest.
Even though the pure January Effect has weakened over time, the turn-of-year window still shows persistent strength in broad indices.
That's what this chart captures.
Two adjacent periods where capital, psychology, and structure all reset in the same direction.
Anomalies survive for one simple reason: they're hard to arbitrage away.
You can't short Christmas.
Seasonal effects fade, reappear, weaken, strengthen, and adapt.
They never work 100% of the time. But when they persist across decades, datasets, and market regimes, they stop being folklore.
They become context.
And right now, the context is this: selling pressure has already done most of its work, liquidity is thin, positioning is lighter than narratives suggest, and capital is waiting for January.
That doesn't guarantee upside.
But historically, this is when the calendar stops fighting the tape.
The good news… we’re in the last two weeks of the year… and that sets us up for 2026.
We have seven market days left this year… And it’s time to make the most of them.
Tomorrow, I’ll be unveiling my Seven Lessons for 2026…
I’ll lay out a new strategy and idea each day… something you can take into the new year with lots of optimism.
Plus, we’ll lay out some of the best stories and trends for the new year.
Seven days… seven resolutions to be a better trader and investor.
It all starts tomorrow at Market Masters…
See you there,
Garrett Baldwin