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Economics & Markets

Should we believe in the Santa rally?

By Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Sydney, Australia

In the same way that their children wait on its mythical namesake, a lot of investors will head into the Christmas-New Year period hanging out for the proverbial Santa rally in equity markets. Is there logic to this legend, or can we chalk this up as another holiday superstition?

Taking a look at the last ten years, history would tend to suggest that the markets do record outsized returns over this period. Putting the highly volatile 2018 aside, mid-December through to January has typically been a strong period for stocks in both the US and Australian markets.

Over the ten years to 2017 the average gain in US shares over the period has been about 1%, and the US market has been up seven years out of ten. The pattern is even more pronounced in Australia, with average gains in the order of 2% and the market up in eight of those ten periods.

As I foreshadowed, for the sake of this argument we’re going to have to consider 2018 an outlier. You might recall that share markets were quite weak right up until Christmas Eve, but then rallied before New Year, particularly in the US. So in hindsight, Santa did deliver last year, he just landed a little later than usual.

There are a number of factors driving these seasonal gains. First, if you look at the typical tax patterns in the US, mutual funds and individual investors often sell shares in the lead-up to the September-October period in order to lock in losses to offset their capital gains and reduce their tax bill. Then, heading into the end of the year they have to buy back into the market.

Second, as we edge closer to Christmas there are fewer IPOs and capital raisings, but investors are usually feeling a little more optimistic coming into the end of the year and searching for options to increase their holdings. That dynamic, combined with the investment of Christmas bonuses, can contribute to an influx of capital over the Christmas-New Year period.

The good news, therefore, is that this phenomenon is more fact than fiction – but there’s always the danger that in the one year you choose to rely on it, it may not eventuate. The record isn’t perfect, but history is usually on the side of investors receiving a Christmas present in the form of another Santa rally before the end of the year.

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Shane Oliver, Head of Investment Strategy & Economics and Chief Economist
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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