The Santa Rally

The average return of the FTSE 100 Index on the first trading day of December since 1984 is -0.04%. We can also calculate the average return of the FTSE 100 Index on the second trading day of December – this happens to be 0.03%. We can continue this process until we have calculated the average return for the Index on each trading day of December since 1984.

With these average daily returns, we can calculate a theoretical average FTSE 100 Index for the month of December. If this theoretical index starts at 100 then the index will have a value of 99.96 on the first day (after a fall of 0.04%), and 99.99 on the second day.

The following chart plots the values of this theoretical average FTSE 100 index calculated from the average daily returns for December.

Average month chart - December (2014)Starting at 100 the theoretical index ends the month at 102.5 – reflecting the fact that the average return for the FTSE 100 Index for the whole month of December is 2.5%.

One of the most remarkable features of this chart (and in fact for the whole year) is the strong performance of the market from the middle of the month. This surge in equities has been termed the Santa Rally (or the Christmas Rally).

From the above chart it can be seen that on average the Santa Rally starts on the 10th trading day of the month.

Santa Rally [2014] In the year 2014, the 10th trading day is the 12th December.

 

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