He’s making a list and checking it twice, but will Father Christmas bring a Santa Rally to the stock market in 2024?
Equities often get a seasonal boost towards the end of the year, known as the Santa Rally.
It could be the icing on the cake for investors after a year of stock market action, helped by the continuing growth of technology and artificial intelligence stocks, that has put equities on the nice list so far.
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Both the S&P 500 and FTSE 100 have hit new highs, while even Bitcoin and gold have had a record run.
Donald Trump’s return to the White House has also boosted the US markets.
Meanwhile, slowing inflation and interest rate cuts have increased market confidence but this may well be dampened by the Autumn Budget, with tax rises falling into the naughty list.
Data shows that December typically brings another month of festive cheer.
Research by Fidelity shows the FTSE 100 has enjoyed a Santa Rally 24 times since 1994, with the S&P following suit on 23 occasions.:
“Market superstitions and seasonal adages are rightly viewed with a hint of scepticism,” says Ed Monk, associate director for personal investing at Fidelity International.
“That said, the ‘Santa Rally’ does seem to be the gift that keeps giving - most years at least.”
What is the Santa Rally?
The Santa Rally is an investment mantra trend that suggests that stocks typically rise during the Christmas and new year period.
It is often attributed to thinner trading volumes around the Christmas holidays that may amplify market moves, while City workers may be investing their bonuses.
Fidelity’s analysis shows December has only been a negative month for the FTSE 100 and S&P 500 six and seven times respectively between 1994 and 2023.
The most recent December dip was in 2022, when the markets were kept down by the energy crisis and former prime minister Liz Truss’ mini-Budget.
The market has even had a rally in challenging times though. In December 2008, in the middle of a 17-month bear market during the global financial crisis, and again in both 2020 and 2021 during the COVID-19 pandemic, markets still delivered positive momentum during the festive period, according to Fidelity.
“December 2023 brought good tidings on both sides of the Atlantic after a Grinch-like 2022,” adds Monk.
“This year is anyone’s guess, with the Trump Trade adding momentum to US shares but weighing on markets elsewhere.
Will there be a Santa Rally in 2024?
Investors benefited from a Santa Rally in December 2023. The FTSE 100 rose by 3.9% , while the S&P 500 was up 4.5%.
Research by wealth manager Nutmeg suggests that the UK’s main market has returned on average 2.5% to investors during December, dwarfing the average performance of 1.5% from S&P 500 during the month over the past 40 years.
That could bode well for this year, but Pacome Breton, head of portfolio management at Nutmeg, said a Santa Rally isn’t guaranteed.
“Investors might believe that Christmas has come early this year with markets generating significant returns through November after Donald Trump’s election and a strong earnings season in the US,” says Breton.
“Markets have had one of their best months of the year, with the S&P 500 trading near its record high and the FTSE 100 also delivering positive returns. Investors will now be hoping that this ‘feel good’ factor continues into the final month of 2024 and we see a Santa Rally occur.
“While the Santa Rally has been an attractive theory for investors to believe in over the last few years, and there is some logic to this belief, it is clear from the data that market performance in December can be volatile.”
Breton says some may question whether the market momentum will continue into the final month of the year, adding: “December could be quieter across markets as investors take a deeper look at what 2025 could bring for central banks, geopolitics and the future of the world’s largest economy.”
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, says the underlying economic fundamentals are supportive for a Santa Rally this year.
“The UK economy has defied recession predictions, with inflation cooling and interest rates on a downward trajectory,” he says.
“Similarly, in the US, robust corporate earnings and the prospect of tax cuts under the new administration have set a bullish tone for the market."
Rather than hoping for a Santa Rally, time in the stock market is often seen as more important than timing it.
“With such a strong narrative around this seasonal phenomenon, it can be tempting to time the market and expect returns to materialise,” adds Breton.
“Looking at past performance, a Santa Rally is by no means guaranteed nor delivered equally. In 2018, developed markets fell as investors became uneasy about low growth and a potential US-China trade war. Only by ensuring your portfolio is diversified globally can you benefit from a Santa Rally where it appears.”
McKeown says: “The most prudent approach for investors is to focus on building a robust investment strategy that can deliver returns long after the Christmas lights have been packed away.”
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