Santa Rally or Boris Boom?

17th Dec '19 by William K

4 comments 630 reads

The FTSE 100 has gone up from 7137 on 6th December to 7519 yesterday, a rise of about 5% over the last 10 days. Some of this may be attributed to the results of the General Election, but it's worth noting that the Santa Rally often starts in the first half of December and continues until the first week of January. (There wasn't a Santa Rally last year but it happens two out of three years.)

So, are we witnessing a Santa Rally and how high will it go? Could the FTSE 100 touch 7800? Is it worth laying a spread bet?

My guess is that the rally (for whatever reason, Boris or Santa) has further to go on the basis that:

1. The GBP has probably peaked against the USD and is likely to fall back a few points.

2. There's general optimism now that Boris has a working majority

3. Trump is coming up for re-election next year and is likely to boost his chances by moderating his trade war and causing a stock market surge.

4. All the other factors that contribute traditionally to the Santa Rally - like city bonuses, tax considerations and office parties.

I'm seriously considering a small spread bet with a target figure of a 300 point gain.

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john2

17th Dec '19

Let's wait and see what effect Boris's intention to make it illegal to extend the Brexit process beyond the end of next year has. He is increasing the chances of a hard Brexit, and I doubt that the markets will be enthused by that.

Anthony127

I believe that the immediate effect has been for the £ to reduce by 1% against the Dollar and the Euro. I understand that 80% of FTSE 100 revenues come from overseas so this should actually help FTSE 100 companies.

On the question of a hard Brexit I think this possibility is overstated. There are existing templates to follow i.e. Canada plus plus and existing arrangements which need to be amended. I think the end of next year deadline should be easily met.

I am not a spread bettor but I also have confidence that the Santa Claus rally will take place (it usually does) and feel very comfortable having a stake in FTSE 100 companies.

Howard Marx

The 'Santa Rally' is a part of a broader seasonality.

Virtually all cumulative Equity returns in the last 70 years have occured in the November - April period.

This phenomenon gives rise to the aphorism 'Sell in May & go away..'

NB the data above relates to the Equity returns of the S&P 500.

Gromley

That's a very interesting chart Howard, I must take a look at that further (tempted to split my year between investing in the market and selling ice cream on a Cornish beach).

It was a useful reminder that I intended to revisit the brief study I did on the Santa Rally almost a year ago.

That was based on the FTSE All Share and I whilst it did demonstrate the effect I didn't think it was anywhere near as pronounced as your figures for the S&P.

Santa Rally or Boris Boom?

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William K

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