- Since the FTSE 100 was created in 1984 the index has increased by an average of 2.2% during the month of December, excluding dividends.
- The FTSE 100 has only fallen seven times during December in 34 years, including 2014, 2015 and 2018.
- The so-called Santa Rally occurs 79.4% of the time, making it one of the most reliable statistical market trends.
- The last two weeks of the year are statistically the strongest, starting, on average on the 10th trading day of December
Adrian Lowcock, Head of Personal Investing, Willis Owen says:
“Financial markets have many sayings and trends. Investors are always looking for patterns in the data to gain a competitive advantage and boost their investment returns. Most, however, don’t hold up to scrutiny. The exception to this rule however, is the so-called Santa Rally, which has long been regarded as one of the more statistically robust market trends. History shows that, in December, the stock market tends to be flat in the first couple of weeks before rising strongly in the last two weeks.
“The FTSE 100 index increases by an average of 2.2% during December in total. Although it is hard to give an exact reason for why the rally occurs, it may be down to fund managers repositioning their portfolios in preparation of the year end, low trading volumes, or, just plain goodwill associated with the festive season that puts professional investors in a positive mood.
“The Santa Rally itself relates specifically to the last two weeks of the year, starting on average on the 10th trading day of December. This year the picture is more uncertain, coinciding as it does with the British General election on the 12th December. It is hard to see any significant rally starting before the election result is known. However, a decisive result and clear winner could then be the trigger for the Santa Rally.
“That said, it is important for investors to focus on long-term trends in the markets rather than short term swings, such as the market reaction to an election. In the long term, investors will focus once again on the most important factors which determine stock market performance, such as company profits and the economic outlook.
“The real message when it comes to the UK is that valuations have lagged other developed markets – such as the US – thanks to uncertainty over both Brexit and the General Election.
“As these get resolved, at least in part, in December, it may be that the UK is subsequently able to make up some lost ground on other stock markets.”