The Santa Rally – Christmas Growth in the Stock Market

You may well of heard of the ‘Santa Rally’. It’s a commonly discussed stock market theory. It is the basic concept that the stock markets, particularly the major indices, show positive returns on the run up to Christmas and the New year.

Is the Santa Rally a myth?

Well, it’s very easy to point out specific years and say yes it’s working. However at Money S&I we like to research ideas and show strong evidence to support or disprove them.

We decided to test the FTSE100 index for evidence of the Santa Rally. We pulled data for the last 20 Christmas periods and came up with the following.

Last Closing Price in November vs Last Closing Price in December

Year Price 30/11 Price 31/12
Diff % Diff
2004 4,703.20 4,814.30 111.10 2.36%
2005 5,423.20 5,618.80 195.60 3.61%
2006 6,048.80 6,220.80 172.00 2.84%
2007 6,432.50 6,456.90 24.40 0.38%
2008 4,288.00 4,434.20 146.20 3.41%
2009 5,190.70 5,412.90 222.20 4.28%
2010 5,528.27 5,899.94 371.67 6.72%
2011 5,505.42 5,572.28 66.86 1.21%
2012 5,866.82 5,897.81 30.99 0.53%
2013 6,650.57 6,749.09 98.52 1.48%
2014 6,722.62 6,566.09 -156.53 -2.33%
2015 6,356.09 6,242.32 -113.77 -1.79%
2016 6,783.79 7,142.83 359.04 5.29%
2017 7,326.67 7,687.77 361.10 4.93%
2018 6,980.24 6,728.13 -252.11 -3.61%
Average 109.15 1.95%

 

Santa Rally December Growth Chart

This first table and graph above shows the FTSE100 daily closing price. Please note that if this falls on a non trading day the price is the close on the previous trading day.

As you can see from the table above the FTSE100 rose in price in 12 of the 15 years. That’s 80% of the time. The average difference was 1.95%. (* You need to note though this is the midpoint close price and doesn’t account for the spread between buy and sell prices).

It has been noted by many that speculation later in the month around the 15th December can show better growth. We tested this again as below from 15th December (or previous trading day).

Closing Price December 15th vs Last Closing Price in December

Year Price 15/12 Price 31/12 Diff % Diff
2004 4,728.20 4,814.30 86.10 1.82%
2005 5,495.30 5,618.80 123.50 2.25%
2006 6,260.00 6,220.80 -39.20 -0.63%
2007 6,397.00 6,456.90 59.90 0.94%
2008 4,277.60 4,280.40 2.80 0.07%
2009 5,285.80 5,412.90 127.10 2.40%
2010 5,882.18 5,899.94 17.76 0.30%
2011 5,400.85 5,572.28 171.43 3.17%
2012 5,921.76 5,897.81 -23.95 -0.40%
2013 6,439.96 6,749.09 309.13 4.80%
2014 6,182.72 6,566.09 383.37 6.20%
2015 6,017.79 6,242.32 224.53 3.73%
2016 6,999.01 7,142.83 143.82 2.05%
2017 7,490.57 7,687.77 197.20 2.63%
2018 6,845.17 6,728.13 -117.04 -1.71%
Average 111.10 1.84%

 

Santa Rally Mid December Growth Chart

The results show a drop in % profits to an average of 1.84%. It seems slightly worse, but it is key to consider the fact that the average loss is less. The biggest rise might be slightly lower at 6.2%, but the biggest loss is far lower at just 1.71% as compared to when trading the whole month it was 3.61%.

Break Even Dates

What would happen if you closed the profitable positions and hung on till break even? This is a key point between the 2 strategies. With the whole of December strategy in 2015 you might be waiting until the 13th April for the prices to catch up. However, with the 2nd strategy you could close at break on all trades by the 8th January. (please note this excludes spreads and trading fees)

How can the Santa Rally be traded?
There are few different ways. One of the easiest ways is by spreadbetting or CFD trading. However these are both complex instruments. So you need to be very careful before doing this. It is also important to note that with trading you get the spread (difference between buy & sell prices) and you can also get other fees. As we have seen the average growth is only 1.95% which although way above the usual spread it is very important to keep this in mind.

Hopefully you have found this article interesting.

Please note all the data and stats here are put together to the best of our ability, but we do not advise anyone to try trading or investing without proper research and advice. Everything we publish is thoroughly researched. We present financial and investment information and will on occasion express our opinion on these. The information provided throughout our website is not and cannot ever be intended either as investment, financial, tax, legal advice or otherwise.

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