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When thinking about it there are a number of reasons why this could be true. Because of additional funds that come into the markets in January a pre-emptive rally in December would be logical ahead of this, as the ‘savvy crowd’ try to beat the post-Christmas surge. In the last few weeks of the trading year a late rush of trades can be required to be completed before the end of the year for legal or tax reasons.
Having ‘sold in May’ fund managers might well be tempted to rebalance their exposure by moving out of cash and into equities to help their year-end performances. Any one or all of these could be the reason for the belief, but do the figures back it up?
In short Yes! Even if the gains aren’t stunning the data shows that December is not kind to the bears. Over the last decade all three indices have risen 27 times out of 30. So 90% of the time we have seen markets climb over the course of December. It is also worth noting on one of the three occasions where this was not the case the S&P 500 closed the month just one point or 0.09% lower.