Angus Campbell: The equity market Christmas rally.

There’s something about Christmas that makes it really special. Is it the time you spend with the family, the overindulgence in food and wine? Or is it the fact that historically stock markets rally into the run-up to the festive season? Whatever it is, one thing is for certain – more often than not Father Christmas manages to deliver decent gains for equity investors in November and December.

Since the FTSE 100 was formed in 1984 it has posted a gain in December on twenty-three occasions, compared to only four declines. That compares well against the Dow Jones Industrial Average, which has seen only twenty gains and seven declines. However, the gains the Dow makes are bigger on average than the twenty-three rallies made by the FTSE, with the Dow’s average coming in at 6.91 per cent since 1984, compared to 6.49 per cent for the FTSE.

Interestingly, it’s only in the past couple of decades that the gains for the Dow have really been ramping up. Before 1984, December was a bullish month for the index but the average was only 2.80 per cent. The proportion of bullish to bearish Decembers has been about the same for the Dow before and after 1984, but the average percentage gain after 1984 has been larger. Even better news for the bulls is that, on average, declines have been smaller since 1984 than they were before that year. This could be a result of financial markets becoming more open and the retail investor, in particular, playing a much bigger role. More pronounced gains could also be a result of the ‘big bang’. New tools becoming more readily available across the markets could also be a reason the bearish Decembers have had smaller declines on average...

Excerpted from an article originally published in the Jan/Feb 2012 issue of YourTradingEdge magazine UK. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
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