Will there be a Santa Rally this year?
For investors, the Santa Rally has proved to be a ‘strange but true’ phenomenon over a lengthy period. So will we see one this year?
It could be the icing on the Christmas cake for investors, in a year which has seen both the S&P and FTSE 100 hit new highs, helped by the continuing growth of technology and artificial intelligence stocks plus latterly the Trump Trade. Bitcoin and gold have also had record runs.
Data shows that December can often be the best-performing period for investors. Research by eToro, looking at monthly price returns for 14 of the world’s largest stock indices from the S&P 500 to Germany’s DAX 40, shows that a quarter of annual returns are often delivered in December.
The analysis of 50 years of data shows that returns in December average 1.63%, outpacing the 0.57% average monthly return from January to November.
Research by Fidelity also shows the FTSE 100 has enjoyed a Santa Rally 24 times since 1994, with the S&P following suit on 23 occasions.
Investors certainly benefited from a Santa Rally last year as December 2023 saw the FTSE 100 rise by 3.9% and the S&P 500 by 4.5%.
So will we see a Santa Rally this year?
Whilst all the underlying economic fundamentals are supportive for a Santa Rally this year, it is far from guaranteed – and data also shows that market performance in December can be volatile.
In practice, it is impossible to predict when the best days or months might fall, and it rarely makes sense to try to time the market. So, investors would do better to adopt a long-term approach. By doing so, you smooth out the volatility and give your investments more time to work properly.
So the Santa Rally is a seasonal trend, but the reasons behind it may well have more to do with human behaviour – a feelgood factor based on goodwill and festive cheer, with investors more willing to buy around Christmas – rather than anything more substantial.
Others more prosaically put it down to thinner trading volumes around the Christmas season that may amplify market moves, while fund managers are repositioning their portfolios before the year end and City workers are investing their bonuses.
Either way, investors should probably ignore it (the Santa Rally not Christmas!) – particularly as markets have already risen significantly this year – and you should instead continue to focus on your long-term financial objectives. It’s probably the best way to avoid a New Year investment hangover!
However, if you would like some financial advice over the festive period, please do not hesitate to contact us.