The heavy December equities sell-off that quashed hopes of a pre-Christmas Santa Rally has finally abated with a post-Christmas bounce bringing some positivity to the end of a tough year for stock markets. Santa brought those investing online a lump of coal this year as the worst ever day of Christmas Eve trading unfolded on Wall Street. However, that was then followed by a record-breaking Boxing Day bounce. The momentum gathered has persisted over the remainder of the week as major global indices continue to rally into the end of the week.

In London, the FTSE 100 is approaching the week’s close up a little under 2%, recovering yesterday’s losses and some. Unlike over in the U.S., UK equities didn’t see a late Thursday rally. However, they have been spurred on today by the positivity on the other side of the Atlantic. Early in the day over in Wall Street, the S&P 500 opened up a further 0.5% of its Thursday close, maintaining its late Thursday momentum. The Nasdaq, which has a particularly heavy weighting towards tech stocks opened 0.4% up and the Dow Jones also began the day 0.5% to the good on its Thursday close.

However, with no obvious catalyst to the turnaround there are concerns it may not last. Analysts are split on the reasons behind the equities bounce of the last few days with some of the opinion it can be put down to a ‘buy the dip’ trend which trading algorithms may well be behind. Others have suggested pension funds which have to maintain a steady equities weighting are having to rebalance before the end of the year, buying different equities to those they have sold off.

As a wider trend there has certainly been a pull back from equities by institutional investors over the last few months. Data shows U.S. mutual funds have pulled around $21.5 billion out of equities and bond funds, reallocating it to money market funds. Equity fund redemptions are on their longest streak since mid-2017 and in Europe there has been 16 consecutive weeks of net outflows.

Asset managers and quant-algorithms are adjusting to a new reality of central banks withdrawing liquidity, deteriorating fundamentals and a ‘buy-the-dips’ mentality. Those are all contributing to volatility as well as the longer term trend of capital outflows. The pattern of volatility is also fuelling concerns it may impact major corporate investment over the course of 2019.

Hopefully the recent rally will hold through to the beginning of next year. However, there seems little prospect that volatility will even out any time soon meaning those investing online should buckle up for the year ahead.