Can we still expect a Santa Claus rally in equity markets?

[MongiIG]

With many benchmark indices scoring their best month, in November, in several quarters, can we still expect a Santa Claus rally in December? IGTV caught up with Ron William from RW Advisory, unerthing what a Santa Claus rally is.

 

 Jeremy Naylor | Analyst, London | Publication date: Friday 01 December 2023 16:29

(Partial Video Transcript)

Finding the magic in a Santa Claus rally

As we start out on the month of December, a lot of the anecdotal commentary about where we go in the month is all about the much-lauded Santa Claus rally. Is it fact or is it fiction?

Let's catch up now with a technical view of what we could expect this year in 2023. As we go into the meat of December, Ron William from RW Advisory joins us now.

JN: Ron, welcome. I want to take a look at what a Santa Claus rally is in just a minute. But let's just quickly ask you, first of all, to give us the set-up, the backdrop, where we are, what's happened. And as we go into December, what should we be looking for?

Rally may be muted this year by Black Friday

RW: Well, season's greetings, Jeremy, good to be back, engaging with eachother on markets in the UK. The Santa Claus rally is fact, just to give the headline answer first. And statistically, we'll take a look at how advantageous it can be to trade this from a tactical perspective.

However, this year, market backdrop and behavioral and cycle indicators suggest that the Santa Claus rally will likely be muted because Santa is likely visited earlier this year in terms of the discounted Black Friday weekend that we just enjoyed. And so the best is likely already done.

JN: OK, well, let's take a look at your first chart and we can get a better idea about what it is you're looking at. You've got here the global ranking model. As I say, this gives a little bit of a backdrop to what's happening in the short term, medium term and the longer term, a strategic view of the markets.

Just talk us through what this is telling us and how we should interpret it.

US enjoying a post interest-rate unwind

RW: Yes, well, this is looking at the global cross asset ranking model. And as you just mentioned, from left to right, we have the strategic long term, tactical medium-term and active short-term trend filters. And what it shows is that there's been a broad tactical surge in risk proxies, notably world equities, Bitcoin and gold.

And just to preface the last two, that's a little bit of risk on, but also risk off in terms of some of the geopolitical headwind that has taken place in recent weeks. Now, US equities has been led by growth stocks, but also year to date laggards.

From an American perspective, this is post interest-rate unwind from that 5% historical level and the so-called Federal Reserve (Fed) silent pivot where it became less hawkish than the last year or so.

[ModestInvestor]

Thanks. A really interesting video and some interesting statistics and analysis.

I haven't the time to go back and analyse whether a strong November increases the chance of there not being a Santa rally, although one of the slides highlights that the negative Santa Rally years were tied with poor November returns for the market such as 2000, 2008 etc which seems a contradiction. 

Would I short and back against it happening? When it occurs in over 80% of years... absolutely not. 

The Santa Rally – Christmas Growth in the Stock Market. (moneysandi.com)