Santa Rally - Fact or Fiction

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 1970’s. 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 historically shown a tendency to rally in the lead up to Christmas and into the New Year, particularly in late December and early January. December and January have traditionally seen average positive returns for the ASX200 across the two-month period in Australia between 2015 and 2025 of 1.69%.^ This included a recent particularly spectacular rally of 8.37%^ in the period of December 2023 and January 2024.

In fact, 7 out of the last 9 years have shown a net positive performance of the ASX200 for the months of December and January. ^

Why does it happen?

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 and optimism about the new year ahead. Most Australian companies have already reported in March and September and are traditionally quiet on announcements over this time. There may also an absence of economic data out of the northern hemisphere markets also providing clear air for markets.

Lower trading volumes may also reduce volatility which leads to the right conditions for appreciation in markets.

So how can investors make the most of this phenomenon?

Simply don’t try to time the market to perfection, but if the rally occurs it may provide your portfolio with a head start to the new year, particularly if a gearing strategy is used.

For example, an equity stake geared at 50% with a 2.5% appreciation of the underlying market would actually appreciate by 5% due to increased amount invested. Of course, if there is a sharemarket fall this would also be reflected by increased negative performance.

However, while a short term boost is always welcome, consider that a well worn phrase is ‘time in the market not timing the market,’ which emphasizes that remaining invested in the market long term is more beneficial than trying to pick short term market movements. Sticking the course and remaining invested harnesses the power of compounding returns and long term appreciation.

A gearing strategy may also be a tax effective¹ strategy to consider if you have a long term horizon and with a goal in mind and can ride out the bumps in markets.

If you’re ready to start building wealth through gearing, we’re here to help. Call us today to speak with a customer service consultant to find out how to get started on 1300 307 807 or contact us.

If you are financial adviser and want to learn more about recommending gearing to your clients, contact one of our Business Development Managers.