What is a Santa Rally? It’s a tendency (which seems to happen surprisingly often) for stock markets to gain in the week leading up to Christmas.
There’s plenty of speculation for the reasons behind it, and I have one favourite. Institutional investors tend to be pessimistic souls, and they often go on holiday at that time. That leaves the markets to more optimistic private investors like ourselves.
So by investing sensibly, and with a long-term horizon instead of the City’s focus on the short term, we can try to beat them at their game. And we can come away from it richer and more cheerful. What’s not to like about that?
If the Santa Rally genuinely is a thing, it looks like we might be seeing a specially early one this year. The FTSE 100 has had its ups and downs in 2022. But we’re now in the longest bull run of the year so far.
Bull run
As we enter December, the Footsie is above 7,500 points. It’s up 13% since a low on 13 October. Who says 13 is unlucky, eh? But what’s behind it, and can it continue? I can see some rational reasons for the UK stock market getting back on its feet, and not just a surfeit of Christmas spirit.
It’s daunting knowing things are going to be bad, but we don’t know how bad. Recession? Inflation? Energy prices?
Once we have some answers and the uncertainty reduces, we can get on with things. Yes, we’re in recession. And inflation hit 11% in October, but there’s a growing feeling that it might have peaked. At least, early signs show that happening in other parts of the world.
And oil is down to around $85 a barrel now, way below its summer peak of over $120. It doesn’t seem to have brought our energy bills down yet, mind. But it’s a start.
Near record dividends
As for FTSE 100 shares, it still looks like we’re heading for one of the best years ever for cash returns. Some dividend forecasts have been faltering a little. But there’s a pretty good chance we’ll still come close to the £85.1bn paid in dividends in the record year of 2018.
Our top companies have launched more than £50bn in share buybacks during the year too. If I take a quick look at the news flow, I see a number of Footsie firms continuing with their buybacks.
In a single day, it includes Compass Group, Imperial Brands, SSE, Smiths Group, CRH, British American Tobacco, InterContinental Hotels, Informa, Kingfisher… Even Barratt Developments is buying back its own shares when the wider investing world is shunning housebuilders.
Cheap FTSE shares
So is this an early Santa Rally we’re seeing? I really don’t know. The whole thing might just be a statistical illusion anyway. But you know what? I don’t care. I just remain convinced that lots of FTSE 100 shares are undervalued, and I intend to keep buying them for the long term.
And I’ll raise a Christmas glass to that.
