Santa arrives too early for the City

Seasonal goodwill is said to boosts markets, but this year's peak is premature. Laura Chesters reports

Traders in the City look forward every year to a special Christmas gift – not something they can find under their tree on Christmas Day. It is the rise of the stock market in the run up to Christmas.

The so-called Santa Rally theory is backed up by the statistics. Since 2000, the average return for the UK equity market in December has been just below 2 per cent, second only to April's average return of 2.1 per cent.

The FTSE 100 last hit 6,000 in July last year and on Friday, news that the politicians in the US were still some way from achieving a solution to the fiscal cliff sent the index down 18.35 points to 5939.99 – quite a way off the hoped for 6,000 mark. Tomorrow is a half day of trading and with four sessions to go until the end of the year, some still think the benchmark index can edge toward the 6,000 mark again.

But is it really Christmas cheer that peps it up each year? Peter Hafez of the news analysis and software group RavenPack reckons it is the good news in November that helps the market up in December, not Christmas goodwill.

But the good economic news in November – including President Obama's re-election, better economic data from the US and some progress on the debt problems in the eurozone – might have actually brought the Santa Rally too early this year.

Mike van Dulken, the head of research at Accendo Markets, says: "The more people believe in the much touted theory, the more they will try to position themselves early. While the market bounced strongly this year from mid-November, helped by QE4 expectations, this also means the rally began to already run its course by the time it moved into the festive month."

But even if you know and expect the Santa Rally to come around each year – when is the good time to invest, and to sell?

Neal Gilbert from market maker GFT Markets says the time to buy could have been mid-December. He says: "If you bought the FTSE 100 at the closing price on December 15 then sold again at the closing price on January 5 – on 11 of the past 12 years, the FTSE rose during this period, giving an average gain of 2.63 per cent. The only year that saw a drop – a modest 0.64 per cent – was Christmas 2006."

So if you invested wisely you could be up more than 2 per cent when you sell in the new year. But what if you weren't so quick to pile in earlier this month? It might not be too late, according to Mike McCudden, at Interactive Investor, who argues the Santa Rally is about as real as Santa himself.

He says: "Generally, we do have a festive pop in equities at this time of year but I don't think Santa has much to do with it.

"I believe this is just one small part of a longer bi-annual cycle which will see us through to May next year … when everyone sells and goes away."

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk