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Santa Claus Rally – Fact or Fiction?

10 December 2020 |Investor insights
Learn how unlocking the value of your investment portfolio using a margin loan can help build wealth and achieve your financial goals on a chart background.

Santa Claus Rally – Fact or Fiction?

10 December 2020 |Investor insights

By Jonathan Agar - Business Assessment & Risk Analyst - Leveraged

The concept of a ‘Santa Claus or Christmas rally’ is not new to financial markets and has been part of both business and financial vernacular since the 1960s. What exactly is a Santa Claus rally, and how can investors prepare for this phenomenon?

The Santa rally is a seasonal pattern in the share market, whereby the market has a tendency to rally in the lead up to Christmas and into the New Year. The exact time the rally occurs is open to interpretation, however December and January have traditionally seen average returns across the two-month period in Australia of 2.52% ^. This two-month period in 2019/20 provided an almost exact replication of the average returning 2.59%.

Causal nexus or Christmas cheer?

The cause of the rally is not definitive but rather accepted as a confluence of factors, notably the ‘feelgood’ lead up to the holiday period, optimism about the new year ahead, and the absence of economic data out of the northern hemisphere markets which in many ways provides clear air for markets and stocks to shine.

Whatever the cause, with RBA cash rate at a record low, and high stimulus spending by governments as a response to the first recession in the Australian economy in 29 years, conditions in Australia for a Santa Claus rally once again look promising. A definitive US election outcome is also a positive for markets. However, as 2020 has shown us, the global economy is turbulent and not immune to left field shocks.

So how can investors make the most of this phenomenon?

Simply don’t try to time the market to perfection. As one thing is for sure, Santa won't be ringing his bell at the start or the end.

If you would like any further detail about how Leveraged margin loans can support your clients’ financial goals, please contact your Leveraged Relationship Manager or call us on 1300 307 807.

^ source: IRESS. All Ordinaries two-month average returns across December and January from 1985-2020. Past performance is not an indication of future performance.


Things you should know

Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. Past performance is not an indication of future performance. The information provided in this document has not been verified and may be subject to change. It is given in good faith and has been derived from sources believed to be accurate. Accordingly no representation or warranty, express or implied is made as to the fairness, accuracy, completeness or correction of the information and opinions contained in this article. To the maximum extent permitted by law, no entity in the Group, its agents or officers shall be liable for any loss or damage arising from the reliance upon, or use of the information contained in this article.

Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). This information is correct as at the time of issue, and is for general information purposes only. It is intended for AFS Licence Holders (or authorised representatives of AFS Licence Holders) only. It is not to be distributed or provided to any other person.

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