I thought there was a good chance of a stock market rally in the final weeks of 2023, and it looks like we might be getting it. The FTSE 100 is up 1.83% over the last month, and 0.61% over the last week.
In the US, the S&P 500 has done even better, jumping 6.47% over one month and 1.81% over the week.
I spent summer and autumn buying stocks in the hope that we’d see a good old-fashioned Santa rally in the run up to Christmas. We usually do. I had far bigger sums at my disposal than I normally do, having recently transferred three legacy company pensions into a Self-Invested Personal Pension (SIPP).
A bit of a spree
I started with a few cheap exchange-traded funds (ETFs) tracking the FTSE and S&P 500. Then I put the rest into individual FTSE 100 stocks, in the hope of beating the index.
As markets picked up in November, I accelerated the rate of purchases and was almost fully invested by 1 December. My SIPP is up around £7,000 in total today and I’m hoping for more by Christmas.
The Santa rally may seem a childish idea but has grounding in history, which shows December is typically the best month of the year for shares.
One theory is that investors are filled with seasonal cheer, another is that ‘short’ investors race to close their positions by year end. But there was another reason why I thought December would be magic this year.
Investors spent most of 2023 waiting for a sign that interest rates have peaked, and would start falling. That moment appears to be upon us.
Yesterday, we learned that US inflation had edged down to 3.1%, the lowest figure for five months. In the UK, wage growth is slowing and GDP fell by a bigger-than-expected 0.3% in October.
I love cheap shares
While bad news for the UK economy, investors took that as a sign that higher interest rates are finally doing their work. That means the Bank of England will be able to ease off sooner than hoped. Markets anticipate the first base rate cut in June, with a total of four over the year.
Plenty of my recent purchases are doing well now. Private equity specialist 3i Group is up 27% since I bought my first chunk of its shares on 3 August. Housebuilder Taylor Wimpey is up 21% since my 3 September purchase. Scottish Mortgage Investment Trust is up 20% since 1 August. Wealth manager M&G is up 15% since 12 July.
OK, so they’re not posting Tesla-like performance, but that stock is too volatile for my liking. My only disappointment is Unilever, down 7%.
As I write this, the FTSE 100 stands at 7,559. It only needs to increase by another 5.83% to break through the 8,000 barrier. That’s probably out of reach, but I’m still hoping for further growth. In fact, I’m betting on it. With my pension.
I’m glad I loaded up on FTSE 100 shares when I did, especially as the dividends have now started rolling in. Even if the Santa rally fizzles out, I won’t mind too much. I’m investing with a minimum 20-year view, which gives my stock picks plenty of time to come good.
