Christmas rally: stock market New Year miracle
We all love the New Year. After all, it is nice to give presents, and, of course, it is nice to receive them from relatives, friends, and the company where you have been working hard for a year. And investors just love to receive gifts from the market.
With the onset of December, the stock markets and the economic press are beginning to mention more and more often the phrase "Christmas rally». Откуда к нам пришло это выражение, какие механизмы и процессы скрываются за этим названием – понимают не все. Зато прекрасно знают, что «рождественское ралли» — это сильный, порою уж слишком оптимистичный и даже беспричинный рост фондовых рынков в конце года. Что за этим стоит – новогоднее чудо или проявление оптимистичного настроения в канун длинных праздников?
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Consumer hurricane
The birthplace of the very concept of "Christmas rally" or "Christmas rally" are the United States of America. US experts calculate that since 1896, since the inception of the Dow Jones stock index, it has seen an increase of 80% in December. Its average monthly increase is approximately 0.5%, while its average December increase is 1.4%.
A century of statistics is more than convincing. Historically, on Christmas Eve, the American consumer literally storms through stores, sweeping goods off the shelves. Naturally, retailers only increase the excitement by organizing Christmas and New Year discounts, sales and holiday promotions. Therefore, it should not come as a surprise that the stock market's "Christmas rally" is first of all demonstrated by consumer shares.
Of course, that's not the only reason for the increase shares. December season of corporate reports is also an additional factor of growth. Also, in the opinion of many analysts, the pre-New Year optimistic moods of investors reigning on the market make their contribution.
The stages of the "Christmas rally"
The stock growth process itself can be divided into two phases. The first stage - is actually the "Christmas Rally" itself, which lasts until December 24. After Christmas begins second step - "Santa Claus rally", which lasts until December 31. Such division is conditional, because the reasons of these phenomena are the same. There is a joke among Wall Street brokers that the market is growing because all the pessimists have gone on vacation. It is worth noting that Americans, big fans of visual effects, have a special omen for the "Santa Claus rally". Stocks will go up in value if it's a snowy Christmas in Boston.
"Christmas rally" in Russian
Despite the huge popularity of the "Christmas rally" among market participants, the statistics of the last few years shows us that this tradition does not always justify itself. Over the past ten years, the Christmas rally on the US stock market was disrupted four times. In Russia, however, since 1995 (when the RTS was put into operation), the "Christmas rally" has been thwarted only during the 1998 crisis. The average growth rate of the Russian market in December, excluding 1998, is 11.5%.
It's worth considering that Russian New Year rally differs from its American counterpart. First of all, the Russian "rally" is not always so rapid. For example, in December 2000 and 2004 the growth of the Russian market amounted to only 3%. The phase of the most intensive growth falls on the second half of December, which gives investors who have not had time to form a investment portfolio"jump on a train."
There is another curious feature of the Russian rally. In odd-numbered years, the growth of the Russian market is stronger than in even-numbered years.
New Year's Eve rising oil prices is not always accompanied by a rally in the Russian market. For example, in December 2002 the oil market showed the strongest growth in 14%. At the same time, the rally in the Russian market was one of the weakest. RTS Index grew by only 2%. The opposite example is also true. In December 1999, the Russian stock market showed a fast and powerful rally, while the oil market fell by 1%.
Is it possible to make a profit based on tradition alone? It is possible, if we take into account that the Christmas rally is nothing more than an additional stimulus for the growth of shares. If there are conditions on the market for shares' growth, the "Christmas rally" can strengthen this growth due to festive optimism. And there will always be psychological reasons for growth. A man is inclined to search for regularities in chaos and traditions of the stock market are their brightest manifestation. Observing the pre-New Year growth of shares, one involuntarily starts to believe in anomalousness of the market, though in fact explanations can be found from the position with the help of common sense and psychology of the market.