This sparked my curiosity to see if we could also see a stock market rally on the JSE this year.
Today I’m going to tell you what the Santa Claus rally is, why it exists and how you have a 69% chance to profit from the JSE this December.
Let’s get to it…
Why you can see a sudden stock market rally at Christmas time
The Santa Claus rally, in a nutshell, is when stocks see sudden price rises and strong gains near the end of December and in early January.
And when stocks rally, this drives up the actual stock market indices as well.
According to the 2019 Stock Trader’s Almanac, there’s an average 1.3% market rally in stocks, during this time that has taken place 75% of the time since 1969.
We are not 100% sure why the stock market ends positive during the last few days of the year, but here are some common theories.
Theory #1: Investment managers cut down on their taxes
This is the time when you’ll see investors and investment managers, selling their stocks to lock in tax reductions before the end of the year.
Once they sell their positions, they then buy other stocks and markets that they believe will rally in the next year.
The buying of these stocks, leads to a rise in stock prices which pushes the stock market indices up.
Theory #2: Investors treat themselves with their bonuses
Investors tend to splurge at the end of the year on stocks with their bonuses they’re paid at the end of the year.
And when there’s buying, demand picks up which leads to higher stock market prices.
We can speculate all we want, but nothing tells us the truth more than what the charts show.
What you see, is the monthly JSE-ALSI stock market chart since 2003…
Looking at the chart you can see how each December (Vertical blue line) performed from 2003 up ‘till 2018.
So, there’ve been 11 out of 16 Decembers (69%) that have shown positive gains. And in total, the JSE has accumulated 29.07% gains in all of those Decembers.
This means, you have a higher chance of profiting from buying this Christmas than selling.