Is a Santa rally coming to town this year?

In past years, stock markets have experienced a lift in December as investors increased trading in the lead up to the year end. This phenomenon is aptly named – the Santa rally.

Let’s take a look at the past two years

In 2014 the All Ordinaries index was at 5190.70 points at the start of December and finished the year at 5388.60 points, a gain of 197.90 points. In 2013 the market was at 5273.50 points at the beginning of December and finished the year at 5353.10 points, a rise of 79.60 points.

So, will Santa rally again this December? Let’s explore the possibilities.

The rationale for some Christmas cheer

Employment growth

During 2015 most economic indicators have fluctuated except for one: employment data, which has outperformed expectations. The unemployment rate fell from 6.3 per cent in July to 6.2 per cent in August. While this was only a modest drop, it does indicate improving economic conditions, which can translate to improved share market performance.

More jobs

Australia has experienced jobs growth this year, with the number of job vacancies rising from 152,800 to 155,700 from the first to the second quarters. This could be another positive for markets.

Past experience

Finally, past experience would indicate there is the possibility of a Santa rally this year. However, past performance is not an indicator of future share market performance, so a rally is not guaranteed.

Why Santa may not be coming to town

2015 share performance

Probably the biggest argument against a Santa rally this December is the performance of the share market during 2015. The All Ordinaries index dropped below 5000 points in October and has been volatile all year.

The main reason for this is the sharp falls in the Chinese market, as it transitions from a manufacturing-led to a services-led economy. The Australian share market is tied to the Chinese economy through mining and resources companies. As the Chinese stock market dropped so did the prices of these linked Australian businesses.

Looking forward to Santa dropping by

While there are no guarantees for a Santa rally this December, we hope Santa graces us with his presence for some Christmas cheer.

Tags: Super