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Can investors expect a Santa Rally this December?

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It's December so it’s time for the annual discussion of whether there will be a ‘Santa Rally’ this year.

Markets typically enjoy a seasonal uplift in December but assuming the trend will repeat itself every year is a dangerous game.

Analysis by Fidelity International of three decades’ worth of FTSE 100 returns during December reveal the Santa Rally occurred in 25 of the past 30 years – more than 80% of the time.

Data from investment platform Willis Owen shows the FTSE 100 increases by an average of 2.2% during December, with most gains made after the 10th trading day of the month.

The ‘Santa Rally’ has in the past been attributed to everything from lower trading volumes in December, to fund managers repositioning their portfolios ahead of the end of the year.

But what has this year got in store?

According to Adrian Lowcock, head of personal investing at Willis Owen, the general election on 12 December means the picture is more uncertain for 2019.

“It is hard to see any significant rally starting before the election result is known. However, a decisive result and clear winner could then be the trigger for the Santa Rally,” he says.

Other external factors such as the global economy and trade disputes could also impact market performance so banking on short-term trends could have “very costly consequences if you get it wrong”, says Fidelity’s Ed Monk.

“Last year, for example, the rally did not arrive, derailed by US-China trade deadlock and Brexit, among other factors,” he adds.

Lee Wild, head of equity strategy at interactive investor, says: “Stats only reflect an increased likelihood of outperformance, not a guarantee.

“Whether UK stocks will experience a Santa Rally this December is largely dependent on the outcomes of two events: the US-China trade dispute and the UK general election.”

The message to investors, therefore, is don’t try to time the market.

“It is important for investors to focus on long-term trends rather than short-term swings, such as the market reaction to an election,” says Lowcock.

“In the long term, investors will focus once again on the most important factors which determine stock market performance, such as company profits and the economic outlook.”

Monk adds: “Trying to predict the market, and assuming short-term market trends will always repeat themselves, is a fool’s errand.

“When it comes to your investment strategy, staying invested throughout market cycles, saving regularly and being well diversified across asst classes and geographies is the best approach to achieving real returns over the long term.”

December returns for the FTSE 100:

Year FTSE 100

Total Return (%)

Year FTSE 100

Total Return (%)

Year FTSE 100

Total Return (%)

Dec-1989 6.70 Dec-1999 5.19 Dec-2009 4.36
Dec-1990 0.32 Dec-2000 1.48 Dec-2010 6.81
Dec-1991 3.37 Dec-2001 0.31 Dec-2011 1.25
Dec-1992 2.70 Dec-2002 -5.39 Dec-2012 0.58
Dec-1993 8.24 Dec-2003 3.16 Dec-2013 1.57
Dec-1994 -0.12 Dec-2004 2.46 Dec-2014 -2.26
Dec-1995 1.18 Dec-2005 3.66 Dec-2015 -1.71
Dec-1996 1.77 Dec-2006 2.90 Dec-2016 5.37
Dec-1997 6.46 Dec-2007 0.45 Dec-2017 5.03
Dec-1998 2.52 Dec-2008 3.52 Dec-2018 -3.49

Source: Fidelity International, November 2019. FTSE 100 Total Returns in GBP

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