Santa coming early this year, again

TECHNICALS: The seasonal Santa rally started early this year, as last. This gave cautiously positioned investors a dose of FOMO (Fear Of Missing Out). The Santa rally effect is global and makes December the best month of the year, accounting for a fifth of returns. This year better fundamentals have met strong technicals. The naturally easing vice of 5% ten-year bond yields and $90 oil met the tech-led end of the US earnings recession. And alongside the contrarian positive of bearish investors (with institutional cash levels over 5% and consistent fund flow stock outflows), resuming share buybacks (the single biggest buyer of US equities), and the strong seasonality. Last year November was strong, December weak, and January rebounded.

SEASONALITY: December is usually the strongest stocks month, with November close behind (see below). December has an average 1.8% return globally. This makes up over a fifth of the annual average return the past fifty years. Our analysis of 15 major markets shows the lowest December return from Spain’s IBEX (0.5% return) and France’s CAC (1.2%). Whilst the best December is typically Hong Kong’s Hang Seng (3.0%) and UK’s FTSE 250 (2.7%). The Santa rally has usually been stronger outside the US, with S&P 500 1.7% average below the average.

SANTA RALLY: The term was coined in 1972 and initially focused on the small number of days around the very end of the year and beginning of the next. It has since expanded, partly as investors have increasingly anticipated it. It is also associated with the positive ‘January effect’ of new investor allocations to start the year. The common denominator is investor repositioning ahead of a new year. With 12 months to go and markets typically rising, allocations are generally positive. This could be especially powerful this year. With institutional investor cash levels high and an improving 2024 outlook of interest rate cuts and recovering earnings. 

All data, figures & charts are valid as of 14/11/2023.