Investors hoping for an end-of-year spike in their share portfolios have history on their side.
The so-called Santa Claus rally, where stockmarkets have extra spring in December, has often proven true over three decades.
Investment group Fidelity International examined 27 years of monthly sharemarket returns and found December was the second-best performing month of the year, with an average return of 2 per cent and behind only April’s 2.1 per cent average.
Eight of the last 10 Decembers have been positive, although this month has started on a negative note and is currently down about 2 per cent amid more worries about Donald Trump’s tariffs and the US-China trade war.
Fidelity’s global cross asset investment specialist, Anthony Doyle, said reasons for the Santa Claus rally could include increased holiday shopping, higher optimism and “reduced participation from professional investors leaving more bullish retail investors to drive the market higher”.
“Or, it might be random,” he said.
Mr Doyle said a more optimistic tone on global financial markets and a reduction in trade tensions would help short-term investor confidence, and he expected the Reserve Bank of
Australia to continue cutting interest rates in 2020.
Australian shares are up 21 per cent this year, and that’s before counting their dividend income.
US shares, which drive global market moves, are up more than 25 per cent since January.
Catapult Wealth director Tony Catt said there was a “very good undercurrent of economic activity within the US”.
“I was in LA this month and saw it first-hand,” he said.
“Their economy is going very well. They’re seeing wage growth, good retail sales and jobs growth.
“The feeling is regardless of what’s going on with trade wars and globally, they’re going well. I suspect we’re every chance to continue to have a good little patch going into Christmas.”
The US purple patch differed from the Australian economy which was in “nowhere near as great shape”, Mr Catt said.
Our Reserve Bank is cutting interest rates to try to stimulate consumer spending as retail sales and wages growth struggle.
Mr Catt said the Santa Claus share rally often emerged because no other information about companies was flowing during this period between profit reporting seasons.
“People are making positive assumptions because of a lack of news,” he said.
Mr Catt expects income-paying assets, such as infrastructure and property trusts, to continue to do well. “As people strive for income over the next five-to-10 years I think those areas are going to become more valuable,” he said.
Originally published as Shares set for a Santa Claus rally