Festivity Index: stock markets and a Santa Claus rally

Inspired by an Invesco advent calendar we received last week, which suggests the ‘percentage feeling of festivity’ is directly correlated to the daily progression through December to Christmas Day (and some market statistics from Fidelity), we decided to take a quick look at the probability of a Santa Claus rally this year.

Santa rally explained

Similar to the St Ledger’s Day adage, a Santa Claus rally describes a sustained rise in the stock market that occurs in the last week of December through to the the first two trading days in January. There are numerous explanations for the causes of this phenomena, including tax considerations, a general feeling of optimism and the investing of Christmas bonuses. 

However, unlike the St Ledger’s Day saying - which statistically only has about a 50:50 chance of success - the Santa Claus rally seems to be a story we can all believe in: much like our mood and high street lights, stock markets do indeed tend to get a seasonal uplift in the second half of December.

The magic of Christmas (stock)markets

According to Fidelity International, in the past 30 years, the FTSE 100 index has risen in 25 out of 30 Decembers*. Additional data from Willis Owen suggests that the average annual monthly rise is 2.2%, with most gains made after the 10th trading day.

Juliet Schooling Latter, research director, Chelsea Financial Services, commented: “While the statistics are compelling, they are also not a guarantee. Three of the five negative December returns have been in the past five years, with a 3.5% fall for the UK stock market in December 2018*.

“And it wasn’t just a disappointing Christmas for UK investors - last December was the worst for global stock markets in 16 years. The US stock market had the hardest time, with the Dow Jones falling 8.4%** in December - and an unprecedented 3.25%*** on Christmas Eve alone (having never fallen less by more than 1% on that day in 90 years). Conversely, January saw stock markets rally all around the world.

“This year, it’s hard to see the UK stock market in particular doing anything in the next week or so, until the election result is known – at which point it could dramatically fall or rise, depending on the result.

“Trying to time investments successfully is almost impossible. With plenty of other things to keep us busy in the run up to Christmas, simply sticking to long-term goals and/or monthly savings, is probably the best strategy for most investors.”

*Source: Fidelity International, FTSE 100 total returns in sterling, November 2019
**Source: FE Analytics, Dow Jones Industrial Average Index, total returns in sterling 1-31 December 2018
***Source: FE Analytics, Dow Jones Industrial Average Index, total returns in sterling, Friday 21 December to Monday 24 December 2018

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet's views are her own and do not constitute financial advice.

Published on 02/12/2019