Is the Santa Rally real or do investors feel SAD during winter?

Alasdair Ronald

Investors have long debated the effect that the shorter days and cold weather have on markets and now new analysis from wealth manager Brewin Dolphin has suggested that it tends to be a positive time for share indices.

Some studies have suggested that Seasonal Affective Disorder (SAD), a type of depression that recurs among some people during the winter months, means some investors tend to display aversion to financial risk and stick with safer choices.

A contending theory says that the opposite is true – a Santa Rally sees markets head in a positive direction, buoyed by Christmas cheer and helped by tax considerations and annual bonuses.

Looking back through more than 30 years of market data, Brewin Dolphin has found the last two months of the year have outperformed the previous ten months 73.5 per cent of the time – in 25 years out of the 34 recorded.

On average, the FTSE 100 gained 1.43 per cent in the final two months of the year, from 19842 to 2017 – more than three-times as much as the first 10 months of the year (0.41 per cent) and more than twice the average return for the full 12 months (0.60 per cent).

The numbers were mirrored in the FTSE All-Share between 1980 and 2017, where November and December’s average monthly gain was also 1.43 per cent, compared with 0.60 per cent and 0.76 per cent for 10 and 12 months respectively. November and December beat the 10 and 12-month averages on 27 out of 38 years from 1980 – or 71 per cent of the time.



Average % monthly capital return

First 10 months

All 12 months