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Over recent years UK investors have come to expect the Santa rally, where the FTSE 100 posts a positive return in December. Indeed over the past 30 years, the FTSE has made an average gain of 2.26% in December, rising in value 83% of the time.
Quite why this phenomenon should occur is unclear, with theories ranging from seasonal goodwill among investors, markets rising on lower volumes to fund managers re-balancing their portfolios before the year-end.
Interestingly there is no agreement about when the Santa rally really starts, with sources offering conflicting answers; is it the whole of December, the week running up to Christmas, or any time period outside this? At IG, we decided to perform our own analysis, running the numbers over every December time period combination (all 465 of them) over the past 30 years.
The results are interesting. We found the best time period to invest has been 15-31 December, with an average annual return of 2.53%, and a positive return 87% of the time. Showing that December 15 is not a complete anomaly, 14-31 December (+2.42%) and 16-31 December (+2.50%) were also in the top ten.