With Christmas just weeks away and the festive party season now in full swing, investors have an extra reason to celebrate this year: it has been a great one for returns on most major stock markets.
In total return terms (in GBP), the MSCI World Index of global equities has returned 23.9% year to date (as at 6 December) and the S&P 500 Index of US companies has posted a whopping 29.4% driven in large part by the excitement about Artificial Intelligence.
The UK market, which has faced some headwinds, has still managed a respectable 11.1% so far in 2024 (MSCI United Kingdom All Cap Index), while China – a serial under achiever in recent years – has delivered an impressive 19.7% return (MSCI China Index) as its authorities have ramped up stimulus measures.
The biggest laggard has been Europe, where the MSCI Europe ex UK Index has eked out a more meagre 6% return.
As the year draws to a close, there are grounds for optimism that returns could push yet higher still in the remaining weeks of the year.
That’s because December has earned a reputation as a typically strong month for stock markets - a phenomenon dubbed the ‘Santa Rally’.
Evelyn Partners, the wealth manager, has put this theory to the test, analysing 50 years of data for monthly returns on global equities using capital-only returns (excluding dividends), for the MSCI World Index, since 1975 (see graphs below).
Jason Hollands, Managing Director at Evelyn Partners, the wealth manager, comments:
“We have found compelling evidence to support the idea of a ‘Santa Rally’. Looking at 50 years of data for the MSCI World Index, December has the highest incidence of any month in providing investors with positive returns, with share prices making gains during the month 74% of the time, a far higher proportion than any other month.
We found average monthly share price rises over the last half-century ranged from as low as -0.76% in the danger prone month of September to as high as 1.84% in November.
Not only has December proven to be the most consistent month for delivering positive gains on global equites, an average price rise of 1.35% for the festive month is also high compared to the average monthly return of 0.84%, making it the third 'strongest’ month after November and April.
Particularly impressive Santa Rallies were seen in 2010 (6.7%), in 2008 in the aftermath of the global financial crisis (10.0%) and in 1998 at the height of the Dot Com Bubble (7.4%).”
There are various theories about seasonal trends in stock markets, but it does seem that the Santa Rally is one of the most convincing.
Hollands continues:
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