Santa Claus Rally – Fact or Fiction?
Santa Claus Rally – Fact or Fiction?
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.
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^ source: IRESS. All Ordinaries two-month average returns across December and January from 1985-2020. Past performance is not an indication of future performance.
Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. 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). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.
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