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December has earned a reputation as a typically strong month for stock markets
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We look at at 50 years of monthly market data for global equities
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June is the most dangerous month on average for stock markets, both globally and in the UK
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Read the full article to find out if investors are going to have a jolly Christmas
Markets usually make gains from the first trading session after Christmas through the second trading session of the New Year but will this cost of living crisis year bring a Santa rally?
Figures from Bestinvest show that it is not a myth, as December has the highest incidence of any month in providing investors with positive returns, with shares making gains 76% of the time, a far higher proportion than any other month.
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“As the year draws to a close, investors could certainly do with some seasonal cheer. Could the month of December offer up a financial Christmas present? Potentially if history is anything to go by. That’s because December has earned a reputation as a typically strong month for stock markets – a phenomenon dubbed as the ‘Santa Rally’,” Jason Hollands, managing director at Bestinvest, said.
The data also shows that when it comes to the UK stock market, using the MSCI United Kingdom Index of large, London Stock Exchange listed UK companies, the high success rate for December was also evident, with the month also delivering positive total returns 76% of the time and with an average monthly gain of 2.26% over the 50 years.
“However, unlike the global snapshot, in the UK April had the highest incidence of gains overall, delivering positive returns 82% of the time,” Hollands said.
Looking at the MSCI World Index, which is comprised of more than 1,500 of the world’s largest listed companies, Bestinvest found that December proved to be the most consistent month for delivering positive global equity gains, an average total return of 1.45% for the festive month is also high compared to the average monthly return for global equities across all months over the last half century of 0.95.
“Particularly impressive Santa Rallies were seen in 2010 (6.8%), in 2008 in the aftermath of the global financial crisis (10.2%) and in 1999 at the height of the Dot Com Bubble (6.8%),” Hollands said.
Explanations as to why stock markets tend to do well in December include the markets getting a boost as City fund managers position for the year ahead, investing any spare cash in their funds to ‘window dress’ their portfolios ahead of reporting periods.
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Another is that hedge funds who take negative bets on companies – known as ‘short positions’ – close out some of these positions before the year end. This would require them to repurchase shares that they have borrowed off other investors in order to sell them and then hopefully repurchase them at a lower price later, before returning the shares to the stock lender.
“Of course, it could just be a case of seasonal cheer and the magic of the festive season,” Hollands added.
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