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Home Markets Global
Published 5 December 2022
Fidelity International
Important information – the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
SHARES are getting in the festive spirit as they often do at this time of the year. The reasons for a Santa Rally may be sketchy, but no-one’s complaining.
Early present
The so-called Santa Rally is another of those hard to explain seasonal stock market adages that just seems to work. Our analysis of the FTSE 100 over 30 years shows that shares have risen in the final month of the year in 25 of them. That looks like more than chance, even if the overall rising trend of the market over the years points to more than a 50% chance of a profit in any given month.
Shares have been on the up for a couple of months now and if they keep it up in December it will be the fourth year on the trot that shares have risen in the run up to Christmas.
What’s pushing markets higher?
There’s good news in both the world’s biggest economies this week. After two disappointing years, China is finally acting as a positive catalyst for market in Asia. The Hang Seng index in Hong Kong rose as much as 4.5% today on hopes that Beijing is finally easing up on its draconian zero-Covid policy. Lockdowns and incessant testing have been a massive drag on the Chinese economy so light at the end of the Covid tunnel has been welcomed. Month to date, the Hong Kong market is up 17%.
Meanwhile over in the US, shares rose for a second consecutive week after Fed chair Jay Powell hinted that the period of bumper 0.75 percentage point rate hikes will end this month. Next week’s rate-setting meeting is expected to deliver a further 0.5 percentage point hike with the current tightening cycle due to end in May or June next year. Investors are already looking forward to that pivot and pricing in a rapid return to neutral rates of around 3% within 18 months.
Are investors getting ahead of themselves?
The key question is whether the market rally is too much too soon, with recessions still a possibility on both sides of the Atlantic. The S&P 500 now trades at about 18 times expected earnings, which is nowhere near the January peak but it’s still much higher than a couple of months ago. That will only be justified if earnings hold up next year. History shows that company profits are often the last shoe to drop in the market and economic cycle.
And over here?
The UK market has also enjoyed a robust rally in recent weeks and at nearly 7,600 the FTSE 100 is back at the level it opened the year and also close to its pre-pandemic peak. Again, investors are looking through next year’s slowdown. The Confederation of British Industry (CBI) this week forecast a 0.4% decline in output next year, mild but a slowdown nonetheless. All eyes will be on this week’s Halifax house price data – in our property-obsessed economy, the expected fall in prices would hit sentiment more broadly.
Important information – investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. 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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05 December 2022
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