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Santa baby, hurry to the FTSE for me

Holly Mackay, founder and Managing Director of Boring Money, explains why she isn't pinning all her hopes on a seasonal stock market rally.

Holly Mackay


Trying to work out what lies around the corner has always struck me as being a bit of a pointless exercise when even the most brilliant economic minds get it wrong.

And sometimes, even if you make the right call about what is going to happen, you then make the wrong call about how the stock markets will respond.

The most striking example of this in recent history was the month after the Brexit vote when a friend of mine, a very clever writer for the FT, admitted that she’d bought a FTSE100 fund, feeling sure that we would vote to Remain and we’d see a ‘relief rally’. Well. She got the prediction wrong, but still made money as the FTSE100 rallied anyway.

What does the road ahead look like?

Back to today and we’re still reeling from a brutal October. British and European markets fell by over 5% and US stocks fell by about 7%. The tech darlings were savaged - Google’s shares lost 10%, while Amazon and Netflix fell by about 20%. Ouch.

As we lick our wounds, debate about what to expect is fraught. The pessimists point to rising interest rates. The higher interest rates, the more we have to be persuaded that the risks of the stock market are worth it, compared to safer assets. So some people retreat from their share holdings, putting downwards pressure on prices. Trump remains an unpredictable firecracker who could be let loose with more tweets about trade wars, invasions and China. Global debt is high. And central banks are removing the security blanket of easy money.

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 days of academic debate.

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 the last month of the year, 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 get on board!”

Technical analysis

There is a school of though 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 and Bollinger bands on graphs. Most of which sounds like a dodgy party you’d stay away from but are in fact patterns used to try and forecast price movements.

There are endless beliefs about markets. Sell in May and go away. Santa rallies. 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.

I have been observing markets for long enough to know that they are like the sea. Unpredictable. Strong. Storms are a given and they don’t always happen when you expect them to.

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 human psychology. 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 experts tell me what lies ahead.

Don’t tell the kids, but I don’t really believe in Santa.  It’s a lovely story. And he might well visit this year. But I’m not going to change my behaviour in anticipation that a jolly chap in red will deliver short-term riches!

Holly Mackay is founder and Managing Director of Boring Money.

This article represents the views of the named author only, and not of Charles Stanley. Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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