A Santa Rally is the calendar effect that involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the New Year. What’s the chance of one occurring in 2025? asks Jemma Slingo, Fidelity International.
It is tempting to dismiss the ‘Santa Rally’ as a myth. If you believe that markets are efficient and rational, why would your investments perk up at the sight of a mince pie? And yet, history suggests they do.
A Santa Rally is a seasonal phenomenon in financial markets where equities rise in the run-up to Christmas. It is a pattern that can be traced around the world.
New analysis from Fidelity, spanning three decades of market data, shows that the FTSE 100 has delivered a positive December return in 24 out of 30 years, while the S&P 500 has risen 22 times. This trend has survived the financial crisis, Brexit and the Covid pandemic.
UK deep dive
It is not simply the frequency of Santa Rallies that is striking. Returns also tend to be stronger than average in December – particularly in the UK.
Over the past 20 years, the FTSE All-Share – a proxy for the whole UK stock market – has achieved month-on-month growth of 2.1% in December. This is well above the average of 0.3%. Returns have also proved less variable than at any other time of the year.
April is the only month that has yielded better returns, supported by tax-year-end flows and company earnings reports.
Pinning down sector winners within a Santa Rally is tricky, as so much depends on the year in question. However, companies with a consumer focus have dominated the charts since 2020.
Airlines and hotel groups such as International Consolidated Airlines, InterContinental Hotels and easyJet have been among the top Q4 performers, helped by holiday travel trends. A diverse set of retailers, including Burberry, Games Workshop, Sainsbury’s and Marks & Spencer, have also enjoyed strong gains.
Christmas winners
The month ahead
Nobody knows for certain why Santa Rallies occur. Some argue the festive season puts investors in an unusually good mood. Others think that workers are ploughing their Christmas bonuses into equities. Lower trading volumes could also play a part – if fund managers are off on holiday, fewer large sell orders may hit the market.
These factors could all come to the fore this December. 2025 has certainly been a strong year for equities, with the UK and the US delivering double digit growth.
However, jitters have set in this month and the Vix index – known as Wall Street’s fear gauge – is rising fast.
Ultimately, seasonal patterns like the Santa Rally are no substitute for investment planning – and short-term market movements are notoriously unpredictable.
Looking further ahead, there is still plenty of optimism around. In its monthly survey, the Bank of America asked fund managers to predict which asset class would perform best next year, and the majority cited equities. Meanwhile, cash levels are running very low at 3.7%, suggesting exposure to riskier assets is high.
Important information: This information is not a personal recommendation for any particular investment. Investment values and income from investments can go down as well as up, so you may get back less than you invest. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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