First off what is a Santa Claus Rally?
A Santa Claus Rally is a rise in stock prices for the month of December, of which the biggest growth normally happens in the final week of the year.
The JSE is highly correlated with the US stock exchange, the Dow Jones. Over the past 100 years, December has been the best performing month of the year for the Dow Jones Industrial average. Of course a month has to be the year’s best, is there any fundamental reasons for the market to rise in December more than any other months?
Some of the reasons given for the Santa Claus rally:
- Some people get year-end bonuses and invest it in the stock market
- Because it is end of the quarter or year some mutual funds and money manager buy stocks that have done well, so they look like geniuses when they publish annual portfolios
- People buying stocks in anticipation of the rise in stock prices during the month of January.
History is no indication of the future, but history definitely favours a rally in the markets for the month of December