23rd November 2015
One of the most statistically reliable stock market trends is the so-called “Santa rally” where since 1984 the FTSE 100 has averaged a 2.4% return during December.
Over the last month of the year the market tends to rise gently in the first couple of weeks before the rally takes hold and then it rises strongly in the final fortnight.
The FTSE 100 has fallen just five times out of 31 during December with the index dropping 2.3% over the month in 2014.
The strongest Santa Rally was in 1987 when the FTSE 100 rose 8.4%
Looking at the current market backdrop, Adrian Lowcock, head of investing at AXA Wealth highlighted that the market has witnessed a repeat of 2014 with oil and mining stocks suffering the most from lower commodity prices as concerns over a slowdown in China hit the sector.
For any meaningful rally in these sectors, Lowcock noted that we would need to see things stabilise first.
He said: “Stock markets are almost on pause as they wait to hear from the US Federal Reserve’s decision on whether to raise interest rates or not. A decision either way could be the trigger need for the rally.
“The Santa Rally is one of the most statistically visible trends in the stock market. It is probably down to mixture of reasons including fund managers repositioning their portfolios ahead of the year end or good will associated with the festive season putting professional investors in a positive mood.”
But Lowcock asserted that investors should look beyond the Santa Rally as stock markets can deliver better returns the longer you are invested.
“If you only invested each December since 1984 your investment would have grown 72%, whilst if you had stayed invested all the time you would have seen 436% return, excluding dividends and before costs,” he added.
Two fund ideas from Lowcock to benefit from a potential Santa Rally:
CF Woodford UK Equity Income
“Neil Woodford seeks to add value by investing in out-of-favour companies for the long term. He is not interested in investing for short-term profit. The manager takes into account both the wider economic and corporate environments, which he believes are constantly evolving.”
Old Mutual UK Alpha
“Richard Buxton is a traditional contrarian investor buying unloved stocks and waiting for the market to change its view. He builds a concentrated portfolio and takes high conviction positions in sectors which are undergoing structural change.”