The stock market in December: will santa rally push FTSE 100 towards 8,000?

For the past 47 years December and April have been the best two months of the year for shares.

For the past 47 years December and April have been the best two months of the year for shares. Since 1970 the FTSE AllShare index has risen in December in 74 per cent of years, and the average monthly return has been 2.1 per cent. The volatility of returns is significantly less in December than in any other month.

The market has fallen in December in only six years since 1984. But two of those falls were recent – in 2014 and 2015 – which might suggest December’s stellar record for shares is on the wane. However, in 2016 the market reasserted itself in December, when the FTSE All-Share index rose 4.9 per cent.

The solid performance of the market in December is part of a wider trend for shares to be strong from the end of October through to the end of the year. This is a result of the ‘sell in May’ effect (aka the Halloween effect), where equities are relatively strong over the six months from November to April. So the market has a fair following wind at this time of the year, and then in December shares often become super-charged.

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On average shares actually tend to be weak in the first couple of weeks of December, but around the time of the tenth trading day, shares prices charge upwards. The last two weeks of December is the strongest twoweek period of the whole year (the Santa Rally), and the three days with the highest average daily returns in the year all occur in this period.

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

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