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Since its launch in 1984, the FTSE 100 index has gained 2.1% on average in December, whereas April and July are the only other months to offer an average advance of 1% or more.
If you want to know why markets talk about the Santa Rally, that is why – because the numbers back it up. Quite why the Santa Rally should occur is less clear.
Investors used to talk about ‘the January effect,’ as money managers put clients’ money to work and into the market in the new year, but since 2000 the FTSE 100 has only advanced 10 times in 25 attempts in January and has chalked up 15 losses, so that may be the end of that.
It is possible that the Santa Rally has developed because investors have looked to anticipate the January effect, and price it in or discount it. But for all its apparent reliability – the FTSE index has fallen just nine times in December since 1984 and only six times since 2000 – the Santa Rally is not certain to offer anything more than festive cheer because it does not seem to be a particularly reliable indicator for the following year.
The FTSE 100 has served up 11 annual losses since 1984 and 10 of those came after a gain in the December of the previous year – the only exception was 2015, whose 4.9% annual decline came after a 2.3% slide in December 2014.
If anything, some of the best Decembers have led to the most treacherous subsequent years. A buoyant festive season in 1993 was followed by 1994’s Fed rate rise shock, 1989’s knees-up let investors stumble into a recession and a bear market, while 1999’s party led to the hangover that came with the collapse of the technology bubble in 2000.
If nothing else, that may back up Warren Buffett’s old aphorism that: ‘The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.’
By contrast, some grim Christmases – 1985, 1990, 1994, 2002 and 2018 – have been followed by cheerful years.
Without wishing to tempt fate, 2024’s dismal December does not seem to have held back 2025 in any way. The FTSE 100 fell by 1.4% in December last year, but the index is up by 18.9% as of the end of November and on course for its seventh-best capital return in its 42-year existence.
In this respect, a joyless festive season for the stock market does not necessarily mean investors will be left with just a lump of coal in the following calendar year.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
