Will we see a Santa Rally this Christmas?

After 11 months of decent returns from UK stocks*, you may think the market will wind down for the festive month of December. But this is unlikely—historically, investors have joined in the Christmas cheer.

The so-called “Santa Rally” has been observed throughout December in many previous years, but is typically most generous in the last week of trading. Analysis from J.P. Morgan Securities suggests that the Santa Rally has a 76% hit rate in the UK equity market (based on the FTSE 100) and has provided an average return of 2.8% over the month of December1.

There are a number of suggested reasons for the Santa Rally, many of which may well be spurious. For example, some may believe it is caused by investors buying stocks in anticipation of gains at the beginning of the New Year caused by another seasonal anomaly called the “January Effect”.

Others suggest that the Santa Rally may be driven by tax considerations, or even a feel good factor from investors due to the festive atmosphere.

These sort of anomalies are by no means guaranteed, but let’s cross our fingers that Santa brings a little extra return this Christmas to the UK stock market.