Can investors rely on Santa this festive season?

Can investors rely on Santa this festive season? Nutmeg analysis reveals the Santa Rally phenomenon fluctuates significantly across markets:

New analysis¹ from J.P. Morgan owned digital wealth manager Nutmeg shows that the FTSE 100 has delivered positive returns in December more often than its peer group. The FTSE 100 has also, on average, outperformed both the S&P 500 and Japan Index during December.

Analysis of 40 years of stock market performance in December reveals that the UK’s main market has returned on average 2.5% to investors, dwarfing the average performance of the S&P 500 during the month (1.5%).

While investors may be encouraged by the findings, ‘seasonal goodwill’ from financial markets is not guaranteed. December might have been the month with the highest proportion of positive returns² (72%), ahead of April (67%), the analysis shows that in 29 out of the 40 years markets delivered positive performance and in 11 years there were negative returns.

Pacome Breton, head of portfolio management at J.P. Morgan owned digital wealth manager, Nutmeg, said:

“Investors might believe that Christmas has come early this year with markets generating significant returns through November after Donald Trump’s election and a strong earnings season in the US. Markets have had one of their best months of the year, with the S&P 500 trading near its record high and the FTSE 100 also delivering positive returns. Investors will now be hoping that this ‘feel good’ factor continues into the final month of 2024 and we see a Santa Rally occur.

“While the Santa Rally has been an attractive theory for investors to believe in over the last few years, and there is some logic to this belief, it is clear from the data that market performance in December can be volatile. Following such a strong period of performance in equity markets, some are questioning whether this momentum will continue into the final month of the year. December could be quieter across markets as investors take a deeper look at what 2025 could bring for central banks, geopolitics and the future of the world’s largest economy.

“With such a strong narrative around this seasonal phenomenon, it can be tempting to time the market and expect returns to materialise. Looking at past performance, a Santa Rally is by no means guaranteed nor delivered equally. In 2018, developed markets fell as investors became uneasy about low growth and a potential US-China trade war. Only by ensuring your portfolio is diversified globally can you benefit from a Santa Rally where it appears.”

¹ Market performance during month of December (1984-2023)

² This is an average of market performance across the FTSE 100, S&P 500, and MSCI Japan Index