As the jolly, rotund, bringer of gifts from the Lapland readies his sleigh for his biggest job of the year today, those investing online into stocks and shares ISAs and SIPPs might have a few regrets that he was this year unable to spare the time to bring them an early Christmas present. The Santa Rally is a stock market phenomenon whose legend is backed up by some serious stats. It refers to the uncanny regularity by which equities markets have demonstrated a significant trend towards strong gains over the last two trading weeks of December.
For 15 of the past 17 years, the FTSE 100 has gained over the Santa Rally period. Going as far back as 1970, the FTSE All-Share index, which tracks every company listed on the London Stock Exchange, has gained 36 years to just 12 when it has fallen over the two weeks. And Santa doesn’t just visit stock market investors in the UK. The S&P 500 has also gained more regularly than it has fallen over the run up to Christmas. 28 times to 20 since 1970 with the Santa Rally trend having become much more pronounced over the last 15 years as Saint Nick has managed to take a hard right over the Atlantic before turning north for home and his final Christmas preparations.
Alas, his other engagements have meant he has had to take 2018 off. Perhaps he felt last year’s whopping 2.7% Santa Rally gain for the FTSE 100 would compensate. The FTSE 100 is down 3.9% for December and with only a half trading day today before the market shuts down for Christmas, it would take an incredible blast of magic dust to create a miracle turnaround. But just maybe the FTSE 100’s 3.9% fall is, in fact, a sign of Santa’s good will to all those investing online. Over in New York, the S&P 500 has slumped a devastating 12.4 this month and looks set to close out its worst December since the Great Depression.
There are several theories around why the Santa Rally happens, though no definitive consensus. Two of the main ones are traders, finance and other senior business execs investing their end-of-year bonus and simply Christmas/end-of-year optimism provoking investors into action increasing capital inflows at this time of year. Another is asset managers investing any cash still sitting around that they just haven’t gotten around to investing yet but need to if they are to meet annual strategy target. It is probably a combination all of those and other less consistent seasonable variables.
However, this year headwinds appear to have meant those investing online have not had the required optimism to make those last-minute investments. Over in the U.S., last week’s Fed announcement that it plans to continue its policy of regular, gradual interest rate rises was taken negatively by markets. Evidence of slowing global growth and the rumbling U.S.-China trade war have also been wider negative themes of 2018 that have not gone away. Overall, 2018 has not been a good year for investors. Deutsche Bank research says that 93 per cent of all the assets its analysts track have delivered a negative total return so far this year.
Opinions on the prospects for 2019 are divided. There is a majority bearish mood among investors but others are optimistic and believe the sell-off has been overdone, leaving room for gains again next year. But before then, any of you investing online should not let the lack of a Santa Rally dim your Christmas cheer. Stock markets are cyclical. If your horizons are long term and your portfolio solid, any temporary downturn, even a severe one, will almost certainly bloom into a recovery and further gains down the line.