SANTA: Much is made of the strong December seasonal performance of the S&P 500. Yet this is left well behind by the typically stronger performance in the rest of the world (see chart). Our analysis of 15 global equity markets shows an average ‘Santa rally’ of 1.8%. December makes up fully a quarter of the average annual stock market return. Global equities rose over 70% of December’s. Yet Christmas may already have come early this year. Global equities are up 13% from October’s lows and increasingly fighting the Fed’s desire to keep financial conditions tight.
RETURN: Hong Kong’s Hang Seng and the UK’s FTSE 100 lead traditional December strength among major markets. There is also an important size effect, with UK and US small caps both typically doing well. Only Spanish and French equities usually lag the S&P 500 gains. Broader seasonality is also very significant. All fifteen markets see much stronger performance in the six months from November to April, than those from May. This is the traditional ‘Sell in May’ effect.
DRIVERS: December seasonality is driven by investors positioning for the year-ahead and in advance of the well-known ‘January effect’. This may have been especially powerful this year. With the 2023 outlook significantly less bad than the dramatic inflation and interest rates shocks of 2022. Christmas may have already come early with markets rallied 13% from their October lows. Investors are ‘fighting the Fed’ again by prematurely loosening financial conditions. We believe we have seen the low for markets, with inflation now falling and a top of the Fed interest rate cycle visible. Valuations are down sharply, earnings resilient, and investor sentiment poor.
All data, figures & charts are valid as of 28/11/2022