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Holly's blog: Santa baby, hurry to the FTSE for me

11 July, 2017

The stock market has had a tough few months and the FTSE 100 is down nearly 10% over the year. October was brutal. US stocks fell by about 7% and the tech darlings were savaged - Google’s shares lost 10%, while Amazon and Netflix fell by about 20%. Ouch. The last 2 weeks of November have also been rough.

As we lick our wounds, the debate about what to expect is fraught. The pessimists point to rising interest rates, Brexit uncertainty, the idiocy of the US Toddler-In-Charge and trade wars. Over in the optimists’ camp, believe it or not, people are pinning their short-term hopes, in part, on Santa.

The Santa Rally

Sometimes I look around the investment world I live in and it really is like the lunatics are running the asylum! Yes, the Santa Rally is a real thing which gets thousands of column inches and generates endless academic debate. Apparently there is an “83% chance” that it is real (😂).

As the name implies, it’s the term to describe stock markets which rally in the run up to Christmas and New Year. Which happens with statistical regularity. Over the last 30 years, the FTSE has made average gains of over 2% in December, rising in value about four times out of five.

Santa does not limit his affections to British investors, with global indices, in particular the US, also feeling the seasonal bonhomie. Over the last 30 years the S&P – the main index in the States – has gone up in December four times more than it has gone down.

What’s behind this?

There are multiple reasons suggested for this, including ‘seasonal cheerfulness’ which promotes buying activity; lower volumes as institutional investors take holidays, leaving a higher share of the market to more typically bullish retail investors; fund managers buying opportunistic stocks for a last chance to boost annual returns; and Wall Street traders investing their annual bonuses. And maybe it’s become a self-fulfilling prophecy based on the herd-like mentality of humans. “Oh quick there’s going to be a Santa rally, let’s jump on the shares sleigh!”

“Technical analysis”

There is a school of thought in investing that endless poring over charts, previous behaviours and stock price analysis can help us predict what lies ahead. I studied this for a term (quite a long time ago!) and watched in amazement as intelligent people drew cups and handles, flags, triple bottoms, wedges and Bollinger bands on graphs. Most of which sound like activities at some dodgy key-swapping party of the 70s, but are in fact patterns used to try and forecast price movements.

There are endless beliefs about markets. Sell in May and go away. The Santa Rally. And the hemline indicator, which suggests that a trend for longer skirts indicates the stock markets are likely to fall. And if mini-skirts hit the catwalk, it’s time to buy! As you can tell, I’m a sceptic.

It feels increasingly hard to try and predict what lies ahead in an uncertain geo-political climate. Which is why I read articles on Santa Rallies with some amusement and interest in what it tells us about the human need to bring order to chaos. And then I stick to my very long-term strategy of chipping in with regular top-ups, holding a well-diversified blend of global investments and resisting the urge to fiddle when the Wall Street experts with books to sell tell me what lies ahead.

So shhhhh… Don’t tell the kids, but I don’t really believe in Santa. And if markets do rally in December – it won’t be the first time in my career some grey-haired bloke in a suit takes credit for all the hard work! Ho Ho Ho.

Have a lovely weekend!