Investors were visited by Santa Claus on Thanksgiving Day

The Santa Claus rally is a phenomenon well known to investors, which involves increases in stock prices in December. However, this year, Santa Claus appeared on the dance floors earlier - already on Thanksgiving brought records for stock exchange indices. On Monday, the all-time record was broken by the Warsaw WIG, American S&P500 is approaching a similarly groundbreaking result.

Saint Santa arrived early?

This year, the Santa Claus Rally started earlier than usual, raising hopes for a profitable year on global markets. Investors in Warsaw, where Santa Claus has been visiting since the October parliamentary elections, have no reason to complain about profits. At the same time, it gives more cautious investors a big dose FOMO (Fear Of Missing Out).

On Monday, WIG reached a record high of 75236 points, breaking the previous peak from November 2021. It took the index 514 trading days to reach a new record high. The Warsaw Stock Exchange is one of the best packages in the world this year, growing by 29,5%.

The American S&P 500 index is also approaching the record level from January 2022. This is supported by both technical and fundamental factors, including: lowering inflation and the prospect of no further increases in interest rates in the US, falling oil prices and reducing geopolitical tension in the world. Seasonality also has an impact here and the fact that the period from November to May is the time of the greatest increases on stock exchanges. The S&P500 has been waiting for a record for 477 days (from January 2022), which is almost two years. However, this is much shorter than after the Internet bubble of 2000 (1541 days) and after the financial crisis of 2008 (1128 days). The American trading floor has already come a long way from 25%. decline in share prices, which reached its bottom in October last year. In 2023, the S&P500 is up 19%, while the average is 15%. The encouraging thing is that new highs tend to beget new highs, and markets have historically almost always been positive in the following six and twelve months.

The phenomenon of the Santa Claus Rally

The Santa Claus rally is global and makes December the best month of the year on most trading floors, accounting for one-fifth of annual returns. For the US S&P 500 index, December is usually the strongest month, with an average rate of return of 1,73%. November is close behind (1,67%). WIG does even better in December, usually growing by 2,5%, although November is worse - we observe an increase of 0,8%.

Globally, the average return in December is 1,8%. An analysis of fifteen major markets shows the lowest December return for Spain IBEX (0,5% return) and French CAC (1,2%), while the most fruitful December is usually in Hong Kong Hang Seng (3,0%) and British FTSE 250 (2,7%).

Date “Santa Claus Rally” was created in 1972 and initially focused on a few days at the end of the year and the beginning of the next. It was associated with the repositioning of portfolios before the new year. However, because from year to year this effect was more and more expected by investors, its time range has expanded significantly. It is related to the "January effect", i.e. the allocation of new funds by investors and the introduction of new strategies - mainly by institutional investors.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.