Q+A: Is the Santa rally real?

Every year around this time there's talk of a Santa Claus rally on the ASX. So what is it, is it real, and will we see one this year?

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Episode Transcript

Speaker 1 (00:06):
Welcome to Fear and Greed Q and A where we
ask an answer questions about business, investing, economics, politics and more.
Oh Michael Thompson and good morning Sean Ale.

Speaker 2 (00:15):
Good morning Michael, Sean.

Speaker 1 (00:16):
We are only a few days away from Christmas now,
and so we've got a question today that combines both
Christmas and investing, so it feels very very appropriate. A
Santa rally?

Speaker 2 (00:28):
Ah, yes, is it real?

Speaker 1 (00:30):
What is it? Can we expect to see one? Well,
three questions there? I'm saying there's a lot in that,
So what is it?

Speaker 2 (00:41):
The idea behind the Santa rally is that equities do
pretty well, particularly in Australia around Christmas because people just
feel good, you know, it's sort of the happy thing
about Santa being around, and people tend to buy rather
than sell.

Speaker 1 (00:55):
Is it really a sentiment based it's.

Speaker 2 (00:58):
Sentiment based primarily. Wow. There's also arguments that well, actually
you get more retail investors rather than institutional investors. Retail
investors tend to sell more than they sorry, just tend
to buy more than they sell, so you get a
bit of a rally because there's more retail money in
the market. So there's all sorts of theories about whether

(01:18):
or not well exactly what it is, but sentiment is
primarily kind of the way to look at it. Is
it real? If you look at the all lords total
return average monthly return over thirty years, April is the
best month. The second next best month is December. Over

(01:40):
forty years, December again the second best month of the
July equal second as well. So does that mean then
that it is more prevalent in Australia because in say
the US, right obviously at Christmas is at the same time,
but it isn't that extended kind of break away from

(02:01):
the office that we have in Australia, So institutional investors
aren't away from the office as much as they are here. Yeah,
I mean, I wouldn't overplay that. So there is a
Santa Claus rally in the US as well, it's just
that no one really knows why. You can also say
in Australia November it tends to be a bit of
a weaker month. You tend to have shareholder meetings and

(02:25):
stuff like that. Now, so November in recent times has
been a great month, but over the long period it's
been like forty years, so it's been a run of
the worst months. So if November is not such a
good month, does it rebound in December? Maybe that's another reason.
You know, I'm sort of fluffing around a little bit
here because Santacaus rally doesn't make much sense, but it
happens in Australia, and it does happen in the US

(02:48):
to a lesser extent. In the US, I have this
thing called sill in Maine go away, So it's the
equivalent in the US is their holiday season is Dune July,
so ours is December January. This is June July. And
the whole idea is just get rid of your stocks,
forget about them, and you come back after your holidays.
It's kind of the equivalent selling main go away that

(03:08):
reflects May in Dune weakness. And there's some sort of
truth that that, particularly in US markets and in Australian markets,
I mean, they are tied anyway. There's also I mentioned September,
the September swoon, and that's a tendency of markets to
dip in September. So I have, like the Santa Claus rally,
there's selling main go away, the September swoon plenty going

(03:29):
on Okay.

Speaker 1 (03:31):
You have taught me over a long time that the
trend is your friend, right, and so that you see
these happening over a long period of time, which is
why they are accepted as kind of traditions or patterns
within the market.

Speaker 2 (03:43):
Right.

Speaker 1 (03:44):
But that doesn't seem there's not a lot of science
behind it, is there that that particularly if say that
the Santa Claus rally is sentiment based and just based
on people feeling good and kind of all of these
bits and pieces and no one big thing that drives
it every year consists, that means that there is the
potential for it not to happen.

Speaker 2 (04:04):
But that's just investing. I mean, investing dry is driven
on sentiment. People think, oh wow, the AI boom is
on let's buy data centers, you know, let's buy chip companies.
And that's real. And so the senecal is really in
a sense is real because people just feel good. It's
there are lots of buying and selling in global markets,

(04:27):
in equity markets that is irrational. When we had the
great Roger Montgomery in during the week and he was
talking about the story of you know you have it,
was it the Lamborghini versus the VW Combi and you know,
the Lamborghini wins, it always wins, it wins, it wins.
But at some point you go, I reckon, this is
the time that the VW comby is going to going

(04:47):
to beat the Lamborghini, right, And you know it's not
going to happen, but you do it anyway because that's irrational.

Speaker 1 (04:52):
Irrational and human behavior to want to back an underdog
and the hope that it's going to come through, even
though you know it's not going.

Speaker 2 (04:58):
To put money a horse at fifty to one as
if you're never going to win it, but you know,
you like the name or something rather and markets are
probably a bit more rational than that. But in that
sentiment feeling good, why not buy? Why not invest?

Speaker 1 (05:12):
Oh, I've considering there has only been five minutes. I've
learned a heck of a lot in just five minutes
this morning, Sean, Thank you very much.

Speaker 2 (05:20):
Thanks Michael.

Speaker 1 (05:21):
If you've got a question that you'd like us to tackle,
send it through on LinkedIn, Instagram, Facebook, or at Fearandreed
dot com dot.

Speaker 2 (05:27):
Are you Oh?

Speaker 1 (05:27):
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