What is a Santa rally?

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Personal Investing

08 December 2020

Friends and families aren’t the only ones feeling festive in December. Global stock markets often join in the holiday fun too.

With shorter days and longer nights, we all need a bit of a boost this time of year. Typically, global stock markets don’t disappoint, ending the year with a rise in company share prices that’s known in investing circles as the Santa rally. Timeframes for a Santa rally tend to vary. Some say it occurs in the last two weeks of December. Others maintain it’s longer than that – starting a full eight weeks from the end of the calendar year.

Why does it occur?

Several explanations have been put forward for this seasonal trend. Investors becoming more optimistic in their outlooks, spurred on by the holiday spirit, as well as tax considerations are to name just a few.

Another explanation could be that as traders of company shares break up for the Christmas holidays, volumes are much smaller, resulting in any share buying that does take place exaggerating share prices upwards.

Whatever the reason, according to the Stock Trader’s Almanac[1] (a long-time provider of seasonal global stock market trends) since 1969 the Santa Claus rally has registered positive returns in 34 of the past 45 holiday periods.  

Does Santa arrive every year?

Unlike the real Santa (ssh … don’t tell the kids) a Santa rally doesn’t visit global stock markets every year. Since the global financial crisis of 2008, investors have experienced several ‘down’ years, where stock markets have ended up being lower at the end of the year than at the beginning.

Apart from 2008, investors nursed losses in 2011, due to heightened worries that several countries in the Eurozone would be unable to pay their increasing debt burdens. In 2018, renewed trade war fears between China and the US and a slowdown in the rate of global economic growth resulted in that year being a particularly poor one for investors. This was made worse by the fact that the US stock market experienced its worst December since 1931[2], sending ripples throughout other financial markets.

Will Santa arrive this year?

Most global stock markets have been enjoying strong gains since the end of November, not just because of the development of COVID-19 vaccines but also in light of the resolution to the US election. While we believe the backdrop for global stock markets remains favourable and are positive in our view for 2021, we are not alone in this belief. That may mean, as investors share similar thinking, that something unexpected might materialise further into 2021, leading to share price fluctuations in global stock markets.

As investors, our view is that you should keep your eye on the long-term picture. Rather than paying attention to the seasonality in stock markets,  remind yourself of why you are invested and what personal goals you are realistically saving for. So, whether you’ve been naughty or nice this year, don’t rely on a visit from Santa to bolster your long-term savings pot.

[1] Source: Stock Market Almanac. Data analysed from 1969 to 2019.

[2] Source: Bloomberg, 31 December 2018.

Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.