By Silvano Grimaldi, CEO of the independent asset management firm Grimaldi & Partners AG.
The “Santa Claus rally” is a recurring financial-market phenomenon in which equity prices often rise more strongly than average during December.
In 2024, there are arguments supporting such a rally, as well as factors that could prevent it. Silvano Grimaldi, CEO of the independent asset management firm Grimaldi & Partners AG, examines both sides.
Reasons Supporting a Santa Claus Rally
Historical Trend
Historically, December has been the strongest month of the year for equity markets.
According to a study conducted by broker eToro, the DAX generates an average of approximately 17% of its annual return during December.
Seasonality
Over the past four decades, the S&P 500 ended December with negative returns in only 25% of those years.
This favourable seasonal pattern therefore supports the possibility of a year-end rally.
Currency Effects
A weak domestic currency, such as the euro at present, can support the German equity market because it benefits export-oriented companies.
Counterarguments
Political Risks
The recent election of Donald Trump as US president and the collapse of Germany’s governing coalition have increased political uncertainty.
These political risks, particularly in Europe, could act as a restraint on equity markets.
Labour Disputes
The upcoming labour dispute at Volkswagen, which could potentially lead to strikes, represents another source of uncertainty.
Planned factory closures resulting from excess production capacity could also weaken market momentum, particularly in Europe.
Market Volatility
Although the historical trend is positive, the risk of a market correction remains.
This is particularly relevant if the short-term upward trend falls below important technical levels.
For example, a decline in the S&P 500 below 5,853.01 points could trigger a medium-term correction and affect international equity markets.
Conclusion
Despite current political and economic uncertainties, there are credible reasons why a Santa Claus rally could occur in December 2024.
The historical trend and the seasonal strength of equity markets during December support this possibility.
Currency-related advantages and expectations of central-bank interest-rate cuts in the coming year could also provide additional momentum.
However, investors should not overlook the current political and economic risks.
A position of cautious optimism appears appropriate, particularly after the DAX closed above 20,000 points for the first time on Tuesday, which could be interpreted as the beginning of a year-end rally.
Overall, investors should maintain a diversified portfolio and focus on long-term trends rather than relying exclusively on short-term market movements.
By investing in quality shares or following a balanced strategy combining equities and bonds, investors may benefit from the opportunities presented by a Santa Claus rally while limiting the associated risks.
Disclaimer
This article does not constitute an invitation to buy or sell any of the securities mentioned.
All investment decisions remain the responsibility of the investor. Before investing in individual shares or other financial products, we recommend seeking comprehensive advice from a qualified professional.
