Santa rally: is it real?

Rob Morgan looks at whether there really is a tendency for markets to rise during the festive period.

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Rob Morgan

The ‘Santa Rally’ is a stock market superstition that associates the latter part of the trading year with stock market gains. Some say it is down to traders investing their Christmas bonuses or increased trading activity caused by the US tax year end.

Others have suggested it could be window dressing on the part of fund managers filling their portfolios with the year’s successful shares. Or perhaps it is just a self-fulfilling prophecy.

Interestingly, the phenomenon does stand up to scrutiny. I looked at the returns of the UK’s FTSE 100 and the US S&P 500 in the month of December over the past 20 years to see how often stock market gains occurred. For both markets December has produced positive returns in 17 out of 20 years, suggesting that the Santa Rally could be a genuine seasonal effect.

Table: % returns in the month of December from the FTSE 100 and S&P 500.

Source: FE Analytics, total return in local currency with net income reinvested.

With markets volatile, and ultimately making little progress this year, there would seem to be scope for some seasonal good cheer this December. However, it would be unwise to base any investment strategy on this or any other stock market adage. Trying to time the market to play short-term trends can have expensive consequences if you get it wrong. In 2002, for instance, the stock market fell heavily over the course of December.

Instead, it is probably better to invest for the longer term, stick to your longer term strategy, save regularly and diversify across asset classes and geographies so your eggs are not all in one basket. A selection of investments with the ability to perform differently should help to smooth out performance.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

More from author

  1. Rob Morgan

    How do we choose the Foundation Fundlist?

    Direct Comment - 30th Nov 2018 09:20am

    The Foundation Fundlist highlights what we consider to be good-quality fund in each m...

  2. Rob Morgan

    Foundation Fundlist ethical funds: six months on

    Direct Comment - 30th Nov 2018 09:20am

    We added several ethical or sustainable investments to our list of preferred investme...

  3. Rob Morgan

    How to invest in funds

    Direct Comment - 30th Nov 2018 09:20am

    Collective investments such as unit trusts and investment trusts remain a popular way...

Most read articles

  1. Santa rally: is it real?

    Auto tariffs are still a problem for Germany and Japan

    Direct Comment - 30th Nov 2018 09:20am

    The suspension of auto tariffs is a relief for Europe but the issue isn’t going away,...

  2. Santa rally: is it real?

    After new US all-time highs, what now for markets?

    Direct Comment - 30th Nov 2018 09:20am

    After markets got off to a fabulous start in 2019, Garry White looks at what could be...

  3. Santa rally: is it real?

    Weaponising the dollar will ultimately hurt America

    Direct Comment - 30th Nov 2018 09:20am

    The dollar is still king when it comes to global central bank reserves, but the curre...

Investment involves risk. You may get back less than invested.