Stock market journalists love an adage. “Sell in May and go away”, “the trend is your friend” and “don’t try to catch a falling knife” are but three popular ones.

To the canon of cliches, we can add “Santa rally”, a relatively recent import from the US.

We know it’s a relatively recent import because had it been a fifty-year-old British stock market saying, it would be known as a “Father Christmas rally”.

Semantics over the nomenclature aside, the question is, is there anything to the assumption that stocks generally rise in December?

Let’s crunch some numbers.

When is a rally not a rally?

Before we do that, though, we need to do a bit more semantic nit-picking over the world “rally”, which is often used lazily as a synonym for a “rise”. I would argue that for stocks to rally, they must have first suffered a setback or a reverse.

This would imply that a “Santa rally” – i.e. a market advance in December – can only occur when stocks have fallen in the preceding 11-month period.

Going back to 1984, the FTSE 100 has fallen in the January – November period 11 times and subsequently risen (rallied) in December on just five occasions, in 2011, 2008 (the year of the financial crisis), 2001, 2000 and 1987 (the year of Black Monday).

What’s more, on one occasion – 1985 – the Footsie fell in December after making progress in the preceding 11 months so, on a hardline definition of the word “rally”, it would be fair to say the case for a “Santa rally” is not proven.

Let’s call it a Santa Surge

Now, if we start calling it a “Santa surge” – and let’s be honest, journalists love a bit of alliteration as much as they love a hoary adage so it is surprising that we don’t already refer to it as such – then we can just focus on whether the Footsie performs better, on average, in December than it does in the other months of the year.

Having got that off my chest let’s crunch some more numbers.

Since 1984, the FTSE 100 has ended the year higher than it started it on 26 occasions and lower on 10.

In the first 11 months of each year, it has risen 25 times and fallen 11 times.

Meanwhile, if we look just at the December performance, we see the Footsie has risen 29 times and fallen just seven times.

It appears there does seem to be something in this Santa Surge lark.

Let’s delve a little deeper by comparing the average percentage monthly change over the first 11 months of each of the years 1984-2019 with the percentage gain in December over those same years.

Statisticians at this point are probably throwing their hands up in horror and muttering about sample sizes and what-not but the fact remains that in 29 out of the last 36 years (81% of the time), the FTSE has performed better in December than it has, on average, in the preceding 11 months.

Stock market performance in December vs January - November


“Quite why this phenomenon should occur is unclear, and in truth, there are probably several factors behind each individual rally,” according to IG Group, the spreadbetting firm.

IG proffers a few possible reasons, including seasonal goodwill among investors, markets rising on lower volumes, fund managers rebalancing their portfolio before the end of the year, bargain-hunting before share prices rise in January – known as the “January effect” (although January has been a duff month more often than not in the UK stock market in the 21st century) and, somewhat improbably unless you are on the sort of bonuses the boys down at IG are, “people investing their Christmas bonuses”.

End of year bonus

In this most extraordinary of years, the Christmas bonuses argument might not fly and I was going to suggest there was not much seasonal goodwill among investors flowing around either but actually, a lot of white-collar, middle-class people have done more than all right out of lockdown so perhaps the money they would have spent on that holiday in Mustique or the Maldives will find its way into the market.

The low volumes explanation definitely seems feasible; there is a school of thought that December is a time when the market professionals burn up their annual holiday allowance leaving the market more at the mercy of retail investors.

If you buy into the Santa Surge concept, the good news is that you might not have missed the boat as IG Group suggests the biggest rises in the FTSE 100 (and the US’s S&P 500, come to that) typically occur between December 14 – 16.

“Overall, investing from these dates brought an average annual return of 2.53%, and a positive return 87% of the time. In contrast, investing over the first half of the month yielded an average loss of -0.23%,” according to IG. (Please note, those stats might be out of date).

If you are really into your stock market adages then the thing to do is to buy in December, then sell in May and go away. Where you’ll be able to go away to in 2020 is anyone’s guess.

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