Here’s why the ‘Santa rally’ is real

Investors can expect a Christmas bonus most Decembers, says Stephen Eckett.

Since 1970, the FTSE All-Share index has risen in December in 75% of all years, and the average month return has been 2.2%. This makes it the second-best month of the year for equity returns after April. But it scores even better than April in that it has the lowest volatility of any month in the year.

The market has only fallen in December in six years since 1984. Two of those were 2014 and 2015; at that point one might have wondered if the stellar record of December was ending. However, the strength of the month has reasserted itself in the past two years, when the FTSE All-Share rose 4.9% and 4.7% respectively.

In fact, since the financial crisis in 2007 the FTSE 100 index has had a return of 19%, whereas the index has cumulatively risen 26% in December alone since the same date. Forget the Sell in May rule – investors could have invested just in December and gone away for the whole of the rest of the year in order to outperform the market.

In an average December, shares have tended to be weak in the first couple of weeks, but then charge upwards around the 10th trading day. The last two weeks of December are the strongest fortnight of the year (often referred to as the Santa Rally), and include the three days with the highest average daily returns in the year.

While December has been a good month for capital gains, it’s the worst month for income investors, with only five FTSE 100 companies paying interim or final dividend payments in the month.

Dates to watch include: 5 Dec: FTSE quarterly reviews announced, 19 Dec: FOMC announcement on interest rates, 20 Dec: MPC interest-rate announcement, 21 Dec: Triple Witching. The London Stock Exchange will close at 12.30pm on 24 December and will be closed all day on 25th and 26th.

Graph showing the performance of the FTSE 100 in December from 1984 to 2017

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment