The Santa Clause Effect – is it repeatable?

The Santa Clause effect is a surge in the price of shares that often occurs in the week between Christmas and New Year's Day. There are numerous explanations for the Santa Clause Rally phenomenon, including tax considerations, happiness around the markets, people investing their end of year bonuses and the fact that the pessimists are usually on holiday this week.

CommSec analysed data over the past 70 years and found the Australian share market generally performs better in January, with the All Ordinaries rising in 50 of the 70 years and gaining 1.9% on average. December is not far behind, rising 49 times in the past 70 years and lifting on average by 1.8% during the month. Interestingly there is also one month that has consistently under-performed, which is June.

So the question remains, is there a ‘good’ or ‘bad’ time to trade shares? What returns will “Santa” bring this season?

As with any economic or financial data, a long period of analysis is required before a definitive result can be determined. Even with 70 years of data we are far from convinced that the trend is a reliable strategy for investors to depend upon. Certainly, the data shows that December, January and April have been stronger months in the past.

It is important to know that the past will not always be a good gauge on the future, and consistency of investment usually trumps attempts to ‘time’ the market.
 
Coastline Private Wealth – end of year break

Please note our team will be taking a break to spend time with our families from the 23rd of December and returning to the office on the 13th of January 2020. We will be checking emails during this time as well as diverting the office phones to our mobile phones.