The index of the UK’s top companies is more likely to rise in December than in any other month according to analysis by Schroders.
Looking back over 30 years it found the FTSE 100 rose by an average of 2.4% in all Decembers since 1987, which is the highest the average gain in any month of the year.
Architas’ investment director Adrian Lowcock also believes in the power of the Santa rally, finding the FTSE 100 had fallen in December in only six out of 33 years since 1984.
Schroders said the analysis “clearly” indicated the market has risen more frequently in December, but warned it was no guarantee it would happen in the future.
James Rainbow, Schroders’ co-head of intermediary strategy, said: “Stockmarket superstitions are true until they fail to be. Just because the Santa Rally has happened before, doesn’t mean the pattern will be repeated.
“In reality it’s impossible to predict when the best days or best months might fall. Investors are better served by a long-term approach. If you invest for five or 10 years, it gives your investments more time to work properly and to iron out the volatility.”
Proposed reasons for the Santa rally include fund managers repositioning portfolios before the year end, lower trading volumes and perhaps just a general feeling of goodwill and festive cheer.
However, Lowcock said investors would be better off ignoring it, rather than basing their investments on the trend.
“The Santa rally is a seasonal trend, but given that the main reasons for it existing have more to do with human behaviour and not investment fundamentals suggests investors are better off ignoring it,” he said.
“Given that markets are have been fairly stable and risen significantly this year, investors would be better off keeping a sober mind and looking to protect their investments in case of a January hangover.”
