Paul's Insights: The Santa Claus rally - fact or fiction?

Christmas is full of traditions, and some investors will be eagerly awaiting the arrival of the Santa Claus rally - the uptick in shares often seen in the final trading days of the year. Is it a coincidence or is the Santa Claus rally real?

There is a valid argument that share values are likely to rise in December. People may have end of year bonuses to invest, or perhaps the seasonal good cheer just makes us more optimistic.

Last year, the Aussie sharemarket, as measured by the ASX 200 index, actually gained very little overall from the start of December to the New Year. But amid the daily ups and downs, the ASX 200 did rise 2.7% between Christmas Eve and New Year’s Eve – enough to convince the true believers that the Santa Claus rally is genuine. 

The year before, in 2017, the market rose 1% in December. And in the previous year, investors saw shares steadily rise by about 4% through December 2016.

That’s not to say Santa Claus always visits the market in December. In 2011 for instance, the Grinch stepped in, and equity values dipped 4% ahead of the New Year. 

While it’s all a bit of lighthearted festive fun, I personally won’t be holding out for the Santa Claus rally. The ASX 200 has already climbed from 5646 at the start of the year to 6862 in early December, giving sharemarket investors a nice 17% return for 2019.

The New Year looks promising too. We’re likely to see more of the same in terms of very low interest rates. The property market recovery is gaining traction, having notched up five consecutive months of rising values nationally. This may not be great for household debt, but it’s good news for housing-related shares including banks and the construction sector.

Moreover, the boost to personal wealth from rising home equity could generate an increase in household spending, which is also a plus for the sharemarket.

On top of this, our population is growing, and unemployment is reasonably stable. Sure, there are some geopolitical uncertainties (there always are) but there are plenty of reasons to be optimistic.

The upshot is that I’ll be sticking with my long term mainly growth strategy in 2020, but if Santa wants to pay a pre-Christmas visit he’s always welcome in the Clitheroe portfolio.


Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine. 


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