A study has concluded the Santa Claus rally – an alleged jump in the stock market, said to occur in the week between Christmas and New Year’s Day – is a very real phenomenon, despite investor scepticism.
The analysis, conducted by Schroders, examined 33 years’ stock market data, including MSCI World, FTSE 100, S&P 500 and Eurostoxx stats, and concluded markets rose 75% of the time in December – while more often than not falling in June, August and September.
An extreme example of this phenomenon is the MSCI World Index, which has finished higher in December in 22 of the last 28 years (79% of the time). In June, it only rose 36% of the time.
As to why stock markets rise in December, the firm speculate it is attributable to seasonal psychology. In essence, investors feel yuletide goodwill, and their market behaviour reflects this. Additionally, the end of the year is also a time when investors and fund managers alike rebalance their portfolios, ahead of the new year.
Of the major indices examined by Schroders, only the Nikkei performed worse over the timeframe in comparison to its peers, rising only 61% of the time in 33 years, with an average rise of 0.49%. The highest average rise was 2.29%, on the UK’s FTSE 250. The firm suggests this anomaly is a result of Japan not celebrating Christmas to the same extent as the West, and Japanese investors’ moods not being as upbeat as a result. By comparison, since 1993, the FTSE 250 has only fallen on one occasion over these seven trading days.
The study also concluded that April is the second best month for markets, rising 70% of the time.
James Rainbow, co-head of Schroders UK intermediary business, said that investors shouldn’t expect stock market history to repeat itself, and should treat superstitions about markets with “a huge pinch of salt”.
“As a case in point, consider the ‘sell in May and go away until St. Ledger’s day’ adage this year. Those who sold at the FTSE 100’s highest point of the year in May, at 6271 points, would have missed out on an 8% gain by St Ledger’s Day,” he added.
©2016 funds europe
