The concept of a ‘Santa Clause or Christmas Rally’ is not new to financial markets and has been part of both business and financial vernacular since 1968 when Yale Hirsch (editor-in-chief of the Stock Trader’s Almanac) first coined the term. But what exactly is a Santa Claus rally, and how can you as investors prepare for this phenomenon?
The Santa rally is a seasonal pattern in the share market, whereby the market rallies in the lead up to Christmas and into the New Year. The exact time the rally occurs is open to interpretation, however, December and January have traditionally seen average returns across the two-month period in Australia as the best 2 months of the year ^.
Christmas cheer or Causal Fundamental?
The cause of the rally is not definitive but rather accepted as a confluence of factors, notably the ‘feelgood’ lead up to the holiday period, optimism about the new year ahead, absence of data and news out of the northern hemisphere markets which in many ways provides clear air for markets and stocks to shine. Whatever the cause, with official rates at new lows, a rebounding domestic property market, stabilising commodity prices and the US market at all-time highs, conditions in Australia for a Santa Claus rally are looking promising. However, we mustn’t forget that the looming US-China trade talks and President Trump’s impeachment trial could still swing the market either way.
So how can investors make the most of this phenomenon?
Simply don’t try to time the market to perfection. As one thing is for sure, Santa won't be ringing his bell at the start or the end.
If you have any questions or would like to discuss how we can assist with achieving your financial goals, please contact Stu Varidel on 1300 861 143.
^ Marrett and Worthington, The Month-of-the-year Effect in the Australian Stock Market: A Short Technical Note on the Market, Industry and Firm Size Impacts, Australasian Accounting, Business and Finance Journal, 5(1), 2011, 117-123.
Stu Varidel and Your Choice Financial Planning Pty Ltd trading as Heart Financial Advisers are authorised representatives of Sentry Financial Services Pty Ltd.
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