Every year, as soon as the Thanksgiving plates are cleared, something interesting starts happening behind the scenes on Wall Street.
Losers get punished harder. Winners get rewarded even more. And the gap between the two widens dramatically in December. If you’ve ever wondered why certain high-flyers seem to magically lift off again right when everyone else is shopping for gifts and drinking eggnog, you’re about to find out.
I’ve been watching markets for almost two decades, and December never fails to surprise me with how selective it can be. It’s not a rising tide that lifts all boats. It’s more like a spotlight that suddenly shines only on the names that have already been crushing it.
The Hidden December Superpower Almost No Retail Investor Talks About
Forget the so-called Santa Claus rally that the financial media loves to hype every December. That seven-day period at the very end of the year is cute, but it’s not where the real alpha lives.
The genuine edge shows up in something far more powerful: the momentum factor.
Since 1928 – yes, you read that right, nearly a full century – December has been the single best month of the year for stocks that have already been outperforming over the previous twelve months. On average, momentum leaders beat laggards by a wider margin in December than any other month. And the data isn’t even close.
“December outperformance suggests investors often look to sell losing stocks to offset capital gains tax liability—tax-loss harvesting.”
Head of Technical Analysis at a major Wall Street firm
That quote nails it. When people dump their dogs to harvest tax losses, the relative performance of the winners gets an automatic tailwind. The losers fall harder than they otherwise would, making the leaders look (and perform) even better.
Tax-Loss Harvesting: The Silent December Accelerator
Let me paint the picture for you.
It’s mid-December. A fund manager (or a high-net-worth individual) looks at their portfolio and sees a bunch of red. They’ve got big gains in their winners, which means big capital-gains taxes coming in a few weeks. The easiest way to lower that bill? Sell the positions sitting at a loss, book the loss, and offset the gains.
Multiply that behavior by thousands of investors and institutions, and you get a wave of selling pressure on the year’s underperformers. That selling pressure pushes those stocks down further, which in turn makes the relative strength of the momentum names shine even brighter.
It’s mechanical. It’s predictable. And it happens like clockwork every single year.
The 200-Day Moving Average Filter – Your Best Friend in December
There’s another seasonal quirk that stacks the odds even more in favor of the bulls this month.
When the S&P 500 starts December trading above its 200-day moving average, the average return for the month jumps significantly higher than when it starts below. Right now – as of December 1st – we’re comfortably above that key trend line.
In my experience, that single condition alone has been worth paying attention to. Combine it with strong momentum leadership still intact, and you’ve got yourself a pretty compelling setup.
Which Names Tend to Catch the December Spotlight?
Historically, the stocks that benefit the most share a few common traits:
- They’ve been among the top performers over the prior 6–12 months
- They’re trading well above their 200-day moving average
- They have strong earnings momentum or a clear growth narrative (AI, cloud, semiconductors, etc.)
- Institutions still love them – high ownership and increasing positions
Two names that check every single one of those boxes right now – and that multiple Wall Street firms currently rate as overweight – are the usual suspects in the AI food chain.
The Undisputed Leader That Refuses to Stay Down
Everyone knows the big GPU maker that has basically become synonymous with the entire AI boom. Its stock got absolutely hammered in November – down close to 13% as valuation concerns crept in, but the fundamentals never wavered.
Third-quarter numbers crushed estimates. Guidance was strong. And just this week they announced a massive $2 billion strategic investment in one of the leaders in electronic design automation software – a move that strengthens the entire AI infrastructure ecosystem they dominate.
Year to date the stock is still up more than 30%. Analysts see another 40%+ upside from here on average. And crucially, it remains well above its 200-day moving average with relative strength readings that are still in the top decile.
In other words, classic December momentum candidate.
The Pick-and-Shovel Play That Quietly Doubled
While the spotlight usually stays on the GPU giant, there’s another company in the semiconductor capital equipment space that has actually more than doubled this year – and most retail investors barely know its name.
They make the machines that etch, deposit, and clean the chips themselves. When AI training clusters get bigger, this company ships more tools. Simple as that.
Last quarter they beat on both top and bottom lines, and the stock barely blinked because everyone was focused on the “sexier” names. That kind of quiet outperformance followed by institutional accumulation is exactly the setup that explodes in December when tax-loss selling hits the laggards.
How to Position Yourself Without Getting Reckless
Look, I’m not saying go all-in on momentum the second December starts. Markets can stay irrational longer than you can stay solvent, as the old saying goes.
But if you’re sitting on cash or underweight the leaders, history suggests this is one of the better risk/reward windows of the entire year to add exposure.
Some practical thoughts I’ve found useful over the years:
- Focus on names with pristine relative strength that are still above rising 200-day averages
- Wait for a dip or consolidation rather than chasing straight up (November gave us plenty of those)
- Keep position sizes reasonable – December can be great, but it can also be volatile
- Consider taking some profits into strength later in the month if the move gets parabolic
Perhaps the most interesting aspect this year? The momentum leaders are the same mega-cap growth names that dominated 2023 and 2024. Continuity of leadership tends to be a very bullish signal for the December effect.
At the end of the day, December on Wall Street isn’t about charity. It’s not about giving every stock a year-end bounce.
It’s about winners keeping on winning – often accelerated by mechanical, tax-driven selling in everything else.
And when the calendar says December, and the charts still show leadership intact above key trending averages, experience tells me to respect the seasonal tailwind.
So while everyone else is hanging lights and arguing about whether Bitcoin will hit 100k before Christmas, the smart money is quietly positioning for what has been – for almost 100 years – the best month to own the market’s proven winners.
Here’s to a strong finish to the year.
