The Santa Rally refers to the sometimes observed trend of equities rallying over the final weeks of December and into New Year. There are
various theories behind the drivers of this phenomenon; the investment of holiday bonuses, happiness on Wall St and the fact that institutional investors are often on holiday, meaning volumes are thin and retail investors dominate the market for the holiday period.
Whatever the drivers are, this December has been
disappointing, with hawkish central banks and the rise of Omicron leading to
increased volatility and lacklustre markets. The start to this week was bumpy
indeed, with equity markets selling off heavily on Monday, before bouncing back
strongly on Tuesday. This general whipsawing and lack of direction in equity bourses
has been witnessed over the course of December.
With a shortened week and the festive period approaching
economic data has been in short supply. On Monday we saw China cut its lending
benchmark loan prime rate, the first time it has done this since April 2020.
With Chinese economic growth slowing, the cut is aimed at spurring on the
economy and many strategists are predicting further cuts in 2022. This has
typically been a positive for both Chinese and global equities in general, with
the world’s second largest economy loosening conditions and likely improving
credit conditions.
The impact of rising cases of Omicron continues to be felt
both domestically and abroad. Rumours of further restrictions after Christmas
continue to gather pace which would cause increased pain for many businesses.
Rishi Sunak did announce a £1bn support package this week, which entitled
companies affected by Omicron to grants of up to £6,000.
With a handful of trading days remaining in 2021, there is
still chance for the Santa Rally to kick in and provide a positive end to what
has been a strong year for risk assets (equities). The drivers of equity returns
have predominantly been strong earnings growth, with valuations actually
falling in most developed markets. Many of the themes that occupied investors
thoughts in 2021 look like continuing into 2022, along with additional
considerations such as rising interest rates and tight labour markets. We will
continue to be nimble and agile in our approach, aiming to navigate some of the
challenges, while also aiming to exploit some of the undoubted opportunities
volatility will create.
We’d like to sign off by wishing you all a happy and healthy
festive period. Thank you to all our clients for supporting us since the launch
of Raymond James, Barbican. As a business, we’ve been truly humbled by the
support, and do not take it for granted. We all feel re-energised and very
excited about the future and look forward to seeing you all, hopefully in
person, in 2022.
Andy Triggs | Head of Investments, Raymond James, Barbican
With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.