MoneyWeek - will there be a santa rally this year?

After a year of economic uncertainty and global tensions, many investors are pinning their hopes on a Christmas market miracle to thaw their frozen portfolios and deliver a much-needed holiday bonus. Historically, market performance suggests that the ‘Santa Rally’ may be more than just festive lore, with the UK market delivering positive returns 76% of the time over the last 50 years and the US S&P500 posting December gains in 23 of the last 30 years. Additionally, the underlying economic fundamentals are supportive this year, as the UK economy has defied recession predictions, with inflation cooling and interest rates on a downward trajectory. Similarly, in the US, robust corporate earnings and the prospect of tax cuts under the new administration have set a bullish tone for the market. However, the most prudent approach for investors is to focus on building a robust investment strategy that can deliver returns long after the Christmas lights have been packed away.

The historical data clearly indicates that a Santa Rally is more likely than not. But does this really matter? Surely, what’s more important is the current state of valuations and what investment returns will look like in the coming years. Some of the valuations in the United States are truly eye-watering, which doesn’t bode well for the future.