Santa rally or sleighed stock markets?

The song “Fairytale of New York” is undoubtedly a Christmas classic but when it comes to the Santa Claus rally, is it a real phenomenon or a fairytale of the New York Stock Exchange?

For those that don’t know, the Santa Claus Rally was a 1972 theory by Yale Hirsch who linked the final few weeks of the year with a notable increase in stock prices. It was believed that due to the increased holiday spending, reduced activity in trading during the festive period, and people getting a Christmas bonus, stock markets benefited from an uptick late in the year.

Whilst we do not support making any kind of investment decisions based on a short time frame, nonetheless we thought it would be fascinating to check if our figures support the urban legend or provide Scrooge-like returns.

As the supposed benefits are linked to equity markets, we’ve looked at three of our portfolios with a good level of exposure to this asset class; Balanced, Adventurous and Global Equity. We’ve based it on a two-month period from the start of November to the end of December.

As an unofficial barometer of opinion, several of the Equilibrium financial planners hazarded guesses that since 2008 there had been positive returns in 8-12 of the 16 years i.e. between 50-75% of the time, there has been a positive return over the two-month period.

Interestingly (for me anyway), over the past 15 years (180 calendar months), the three Equilibrium portfolios have shown positive returns 65% of the time in single calendar months (1). According to the internal straw poll, these figures align closely with the mid-range estimates of our financial planners.

The results are in!

I’m sure you are all on the edge of your seats to discover the outcome and they are surprising. Since 2008, when we became discretionary managers, our portfolios have given positive returns from the start of November until the end of the year in 15 of the 16 years! This is an amazing 94% success rate which is higher than the FTSE 100 at 66%, and the S&P 500 at 78% (1).

Don’t get too excited     

As we always disclaim, “past performance is no guarantee of future results” and if you were to investigate it further, there could be reasons to be wary. The only negative year was 2018 when Donald Trump was in power, and markets reacted negatively to the trade war between China and the US. Sound familiar?  With Trump’s recent election, financial markets may react more Grinch-like to Christmas if he follows through on his plans to raise tariffs and other trade restrictions.

Whether your portfolio is up or down over the festive period, rest assured all our decisions will be made with your best interests at heart to give long-term financial confidence. At Equilibrium, we stand by the mantra that investing is for life (or at least 5 years!) and not just for Christmas!

Sources

(1) www.feanalytics.com

Past performance is for illustrative purposes only and cannot be guaranteed to apply in the future. Investments will fall as well as rise.

This blog is intended as an information piece and does not constitute a solicitation of investment advice.

If you have any further questions, please don’t hesitate to get in touch with us on 0161 383 3335 or by reaching out to your usual Equilibrium contact.