As we approach year-end, statistics are being updated to highlight the ‘Santa Rally’ phenomenon, which states that equities have a tendency to deliver positive performance into year-end fuelled by a combination of it being a self-fulfilling prophecy, thinner holiday volumes, fund manager window dressing (make sure you are holding the best performers for year-end statements) and punters rotating out of losers for tax reasons and into the winners, all of which goes to support the adage that the trend is your friend. Now, while statistics can be manipulated, and it depends where you put your marker in the sand, our research holds that the month of December as a whole tends to be a positive one for major equity indices around the world.
The table below highlights the UK’s FTSE100 posting gains in 18 of the last nineteen Decembers. That’s 95% of the time, with Germany’s DAX a close second 16/19 (84%) and the S&P500 15/19 (78%). With more data available for certain indices, we note the FTSE’s success rate actually runs to 20/22 Decembers (91%), the DAX and S&P500 to 18/22 (82%) and the DOW to 16/22 (73%). All very healthy statistics to have in front of you as we gear up for the festive season. Of particular note is the similarity in average performance across the bourses with a respectable circa 2.0% each year, although there are no guarantees that history will repeat itself and it would be prudent to cast an eye over the history of data and be prepared for much smaller gains and maybe even some losses (end of tech bubble bust in ‘02; financial crisis in ‘07-08).
Comfort and Joy for Markets in China and Europe
Nonetheless, with the central banks looking set to remain accommodative for the foreseeable future, maybe even more so in the case of the Eurozone’s ECB and China’s PBOC, there is a case to be made for equities continuing to outperform and for December 2014 to add itself to the tally of success for this well-known phenomenon. With my focus being on UK listed stocks over here in London we are already interested in the potential for the FTSE to play catch-up with its major equity peers given it that it remains the only one underwater for 2014, hindered by its international heavyweights and miners in particular, which have been battered by commodity price weakness linked to global growth uncertainty (Europe, China) as well as the U.S. dollar strengthening post QE and ahead of a 2015 U.S. rate rise. Oh, and if you don’t get any equity outperformance from Santa this year, remember there’s always the ‘January effect’ phenomenon to look forward to.
Although it’s early, I wish you all a happy holiday season, and look forward to more writing in the New Year.