Will December bring a Santa Rally?

As the end of the year approaches, investors will be keeping a careful eye out for signs of a Santa Rally - an adage which predicts that the markets will rise in the days approaching Christmas and the new year.  

Although the reasons for the anticipated surge are unclear - our analysis¹ of 30 years’ worth of FTSE 100 returns during December confirms it is a persistent trend - with the Santa Rally occurring 24 times since 1993. 

Our analysis shows that markets tend to be resilient in the last month of the year, delivering a ‘Santa Rally’ even in challenging times. In December 2008, in the middle of a 17-month bear market during the global financial crisis, and again in both 2020 and 2021 during the COVID-19 pandemic, markets delivered positive momentum during the festive period.

December returns for the FTSE 100 and S&P 500 over the last five years

Source: Fidelity International, November 2023. FTSE 100 Total Return in GBP. Past performance is not a reliable indicator of future returns.

Why does the Santa Rally happen?

Investment Director Tom Stevenson recently commented, “While market superstitions and seasonal adages are rightly viewed with a hint of scepticism, the ‘Santa Rally’ appears to be the gift that just keeps on giving. According to our analysis, December has unwrapped positive returns on 80% of occasions for the FTSE 100, and 77% for the S&P 500 - making it a time of the year when investors can hope for an early Christmas present.

“The yuletide market surge could be due to several factors; thin trading volumes around the Christmas holidays may amplify market moves. The tendency of markets to rise more frequently than they fall might contribute to the holiday cheer.

“While this could explain why December has frequently been a time of celebration for investors, the broader performance of the market is influenced by various external factors. Attempting to time the market, especially on the basis of past performance, carries a lot of risk. A more sensible investment strategy is to remain invested through the market cycles, save regularly, and ensure diversification across different asset classes and geographies.”

You can learn more about making smarter investment decisions in our Principles for good investing.

Source 

¹ Fidelity International, 30.11.2023

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Please be aware that past performance is not a reliable guide indicator of future returns. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.