Sleigh the markets this Christmas

Around this time in December, traders start thinking about a particularly special end of year celebration. Not Christmas or the New Year, but the fabled Santa rally that has buoyed indices markets like the FTSE 100, FTSE All-Share and US 500 for the better part of the last three decades.

The fabled Santa rally can help boost investor’s portfolios, pump up market optimism and offer investment opportunities on a range of individual stocks as well as global indices.

What is the Santa rally?

The Santa rally is the period of above-average stock market performance coinciding with the December holidays in the lead up to Christmas, sometimes spilling into the new year. It’s regarded as one of the most statistically robust trends throughout the year.
The FTSE 100 has been one of the primary beneficiaries of the Santa rally, making an average gain of 2.6% between 1984 and 2017. Furthermore, in 18 out of the last 25 years, the index has surged on average 2.4% in the final two weeks of the year.
The FTSE 100 has only fallen six times during December in the last 34 years, meaning the rally occurs around 80% of the time, making it one of the most reliable statistical trends. In fact the Santa rally has only failed to deliver in two years since 2000.

What drives this phenomenon?

There are a number of factors driving the Santa rally each year some are seasonal impacts to do with trading volume and others are unique effects of market conditions.
The major forces behind the year-end rally in global indices include:

  • Around Christmas, many people working in financial services are paid their annual bonus and a proportion of this is often invested in stocks
  • Towards the end of the financial year fund managers look to reposition and rebalance their portfolios, buying outperforming stocks and getting rid of underperformers
  • Investors may also be more optimistic in December as they look ahead to holidays, Christmas and the New Year and this seasonal goodwill may spill over into their investment choices
  • Many of the bigger hedge fund investors are on leave at this time of year which in turn brings more speculative investors to the fore, the majority of whom will help drive up prices and market momentum

Can we expect a rally in 2018?

A recent Reuters poll found that the median forecast of almost 30 respondents pointed to an expectation that the FTSE 100 could end 2018 at around 7,500 points so clearly there is optimism within the marketplace that a rally could happen.

One of
eToro’s top indices traders, AimsTrader, who has enjoyed good profitability year-to-date and manages $5M+ of Copy assets, says:
“Given the lower rates and trend lines over the last few weeks, I expect the indices to turn upwards in the last few weeks of this year. I suppose the indices will rise and probably accelerate in the last days of this year with a Santa rally.”

In the UK, the FTSE 100 has its own challenges to face with the final stages of Brexit negotiations bringing a sense of unpredictability yet excitement to the markets.
Many of the companies on the FTSE 100, representing a wide variety of industries, like consumer goods, basic materials, and technology, have strong international business operations which could help weather the short-term impact of a potential Brexit vote in parliament and keep the index’s outlook strong.

For the FTSE 100 to gain, blue-chip stocks will also enjoy a similar rally towards the tail end of December. For example, UK-stock
WPP has performed consecutively for the last eight years and has rallied 20 out of the last 24 years.

Moving across the pond to Wall Street, confidence remains high in the midst of such a long-term bull run and some of the Dow Jones index’s biggest companies, from the tech and consumer goods industry, have ambitious plans for the year ahead which could boost the index’s performance further.

Take advantage of the Santa rally

Will we see investors keen to swap up some of their favourite stocks at a discount? Did you know you can trade the value of the index? Take advantage of this statistical phenomenon. Buy US or UK stocks with no ticket or management fees, competitive spreads, and low minimum deposits. Moreover, UK stock investors will not be charged stamp duty, saving 0.5% on transactions over £10,000.

For more investment ideas around the Santa rally make sure you check out our
comprehensive market page where you’ll find dedicated news, stats, in-depth charts with a range of time-frames and insightful research to help you make the best decisions possible.

You can also see what some of our most successful indices investors are backing, so head over to the 
feed for the latest insights and to join the conversation.
Remember, if you do decide to enter the market and trade around a rally in December make sure you carefully research your potential entry points and that you have a strategy in place. Risk management tools like Stop Loss are essential to help you manage your risk while Trailing Stops is a powerful tool for helping to both lock in profits and protect your position should the market move against you.

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Past performance is not an indication of future results. Trading history presented is less than 5 years and may not suffice as basis for investment decision. This article is not an investment advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.